VENEZUELA – COUNTRY ANALYSIS

Introduction

Venezuela is a tropical country on the northern coast of South America. It possesses

recognized borders with Guyana to the east, Brazil to the south, and Colombia to the
west. Trinidad and Tobago, Grenada, St. Lucia, Barbados, Curaçao, Bonaire, Aruba,
Saint Vincent and the Grenadines and the Leeward Antilles lie just north, off the
Venezuelan coast.

It was a former Spanish colony & has been an independent republic since 1821. Caracas
is the capital of Venezuela. (Spanish) and the official language of Venezuela is Spanish.
Mr. Hugo Chavez is the president incumbent of Venezuela, elected President in 1998
with a campaign centering on promises of aiding Venezuela's poor majority, and was
reelected in 2000 and in 2006. They talk money in terms of the Bolívar.

There are currently two major blocs of political parties in Venezuela: the serving leftist
bloc United Socialist Party of Venezuela (PSUV), led by incumbent President Hugo
Chávez, and the Communist Party of Venezuela (PCV). The colors of the Venezuelan
flag are yellow (stands for land wealth), blue (for courage) and red (for independence
from Spain). Venezuela is divided into twenty-three states.

Traditionally associated with a totalitarian regime, the country is nevertheless regarded as

one of the more stable countries in South America. For the past ten years, the fate of the
country has been tied to Hugo Chavez Frias, a former military official who came to
power in 1998.

When he took office Chavez launched a reform of Venezuela's oil policy, seeking to
reestablish a predominant role for the presidency in the design and implementation of an
oil strategy through the Ministry of Energy and Mining. This move challenged vested
interests in Pdvsa, a powerful, almost autonomous, company with total assets estimated at
$100 billion. While Chavez did not deny the role of the private sector in the oil industry,
his reform process aimed at curbing the trend toward the privatization of Pdvsa.

On the international front, Chavez worked to achieve a higher price for oil through
OPEC – The Organisation of Petroleum Exporting Countries, the oil cartel of which
Venezuela was a founding member. He also worked to increase the profile and power of
OPEC world wide. Chavez additionally sought to guarantee that the state collected a
greater share of oil revenues. He imposed royalties on oil output which was applied on
foreign producers operating in the country, chief among them U.S. giant Exxon-Mobil. In
addition, much of the money has been spent positioning Venezuela as an alternative to
the U.S.-backed IMF and World Bank.

Venezuela's alternative funding has generated quite a lot of support and popularity for
Chávez. Its loans with preferential interest rates have allowed countries like Ecuador and
Argentina to pay back their debt to the IMF and spend more on social services. In
Ecuador, for instance, Venezuelan funds have allowed social spending, at 38% of the
2007 budget, to finally catch up to foreign debt payments.

Foreign Relations

Venezuela shares close relations with most of the countries of South America. For the
first time since the days of Simón Bolívar almost 175 years ago, the idea of South
American unity has been resuscitated with the first building blocks being put into place,
even though there is a long way to go.

Since 2004, Latin America in general and Venezuela in particular have been looking to
expand their economic horizons. Chávez’s regular criticism of former President Bush,
bold political schemes and ample funding of Latin American countries on preferential
stipulations have led to what some analysts refer to as "the Caracas Consensus." Since his
election Chávez has used Venezuela's enormous oil supply, to position himself as a major
player in the region's geopolitics. As a strong member of OPEC, Venezuela is influential
on global energy issues. President Chávez is actively pursuing stronger relations with
Latin American and Caribbean nations (through initiatives such as Petrocaribe) and major
emerging markets. Through making cheap oil available to a majority of its neighbors,
Chávez hopes to lay the foundation of Latin American unity.

In the 2005 Summit of the Americas, Chávez, along with Brazil's Luis Inacio "Lula" da
Silva and Argentina's Nestor Kirchner, crushed any U.S. hopes of establishing a free-
trade area of the Americas (FTAA). The Free Trade Area of the Americas was a proposed
agreement to eliminate or reduce the trade barriers among all countries in the Americas
but Cuba which was being negotiated by 34 countries of the Americas, and was intended
to be the most far-reaching trade agreement in history, similar to NAFTA. (Under
NAFTA the United States came to dominate Mexican trade, muscling out other Latin
American countries).

As an alternative, he's pitching the ALBA, the Bolivarian Alternative for the Americas
(named after the Latin American liberator, Simon Bolivar, who was also Venezuela’s
most famous son). ALBA represents an alternative vision to neoliberal economics, one
with a socialist agenda in trade relations attempting to re-embed 'the social' back into
economic and political relations in the region.

This exists alongside numerous other incentives such as the Latin American Parliament
(to replace the Organization of American States) the Food Security Fund, the ALBA
Bank or Banco del Sur (in place of the IMF and World Bank). Since 2007 Venezuela has
been promoting the creation of the Bank of the South (Banco Sur), to concretize regional
financial integration and independence from the U.S.-dominated international financial
institutions. At an earlier opportunity Chavez has said that he would be willing to have
Venezuela's Central Bank deposit 10% of its reserves in Banco Sur. At a meeting in
Caracas, Argentina, Brazil, and Venezuela agreed to capitalize the bank with $2 billion
each, while Ecuador, Bolivia, Paraguay, and Uruguay offered $1 billion each. These
countries have also discussed the creation of a new regional currency. The addition of
Brazil to the Bank of the South will be very beneficial to the fund since Brazil has the
biggest financial reserves in Latin America.
South American leaders have also sought to deepen regional economic integration,
primarily by expanding the Mercosur--South America's most important commercial
alliance--and embarking on an ambitious road-building project. When Mercosur was
founded in 1991, it was to be little more than a tool to groom individual countries for
eventual absorption into the US market. But reformers in recent years have worked to
transform it into a real alternative to Washington's FTAA. Now, Mercosur, the “Common
Market of the South,” is the largest trading bloc in South America. Mercosur's primary
interest has been eliminating obstacles to internal trade, like high tariffs, income
inequalities, or conflicting technical requirements for bringing products to market.
Venezuela's addition to the group has experts wondering if Mercosur will reorient itself
as a political force.

Mercosur's blockage of the FTAA and its general disinterest in trade with the United
States has discouraged warm relations between the two. While the United States has not
overtly criticized Mercosur, Washington views the bloc as being an impediment to the
expansion of their trade in Latin America.

Early in 2005, Chávez managed to create three new regional agreements known as
Petrocaribe, Petrosur and Petroandina. They all have the ultimate goal of bringing
together a series of economic, political and social initiatives within Latin America. The
first group, known as Petrocaribe, comprises Venezuela and 14 Caribbean countries and
is based on an exchange of oil between the two regions. The second, Petrosur, brings
together Venezuela, Brazil, Uruguay and Argentina. Petrosur is being touted as a sort of
South American OPEC and is seen as the first step to Latin American integration not only
in terms of free trade, but also in social, political and more importantly human terms. The
third, Petroandina, comprises Venezuela, Colombia, Bolivia and Ecuador.

The ultimate goal for the future is to create Petroamerica, a coalition of state-owned oil
companies that would cover all of South America. In theory, this approach would help
solve the supply problems of the region. Petroamerica is a proposal envisaging the energy
integration of the America, which is embraced within the framework of the Bolivarian
Alternative for the Peoples of our America (ALBA) and based on the principles of
solidarity and complementariness of the countries concerning the fair and democratic use
of resources for the development or their peoples. Even Honduras, long seen as a U.S.
satellite state dating back to the days it assisted Washington in overthrowing Guatemala's
government in 1954, has joined ALBA, showing that the creeping tide of Bolivarianism
is extending to the still fragile Central America.

Chavez has maintained a publicly close relationship with Cuban president, Fidel Castro,
for which he has been criticized both internationally and by the conservative voices in
Venezuela. The opposition has interpreted the good rapport between the two leaders as an
indication that Chavez's vision for Venezuela was one based on the Cuban model of
government. With illiteracy affecting 1.5 million people nationally, Venezuela, with
assistance from Cuba, set out to devise a literacy program modeled after the 1961 Cuban
Literacy Campaign. Utilizing modern technology, Misión Robinson, Venezuela’s literacy
campaign, employs a video literacy program, which was made by Cuba. In addition to
Cuba’s aid in Misión Robinson, Cuba’s support has been vital for Venezuela’s Barrio
Adentro (Inside the Neighborhood), a program that brings medical assistance to the poor.
Over 20,000 Cuban doctors have participated in the program to date. They provide care
for seventeen million Venezuelans, nearly two-thirds of the population, many of whom
have never before received healthcare.

The inclusion of Evo Morales president of Bolivia into this circle signals a united Latin
America. Morales, an indigenous socialist, assumed the presidency of Bolivia in January
of 2006. He has spoken to the necessity of the nationalization of natural resources,
redistribution of wealth, collaboration with Venezuela and Cuba, and has openly
condemned U.S. imperialism. Venezuela through Petroandina in 2008 has developed oil
and natural gas production in Bolivia. Morales, along with Cuba's Castro, have emerged
as one of Venezuelan President Hugo Chávez's closest confidants. Venezuela is actively
using its diplomatic and financial muscle to cultivate the friendship of Bolivia.
Venezuelan aid to Bolivia has increased substantially, with Caracas offering important
technical support to the renationalised Bolivian oil company, Yacimientos Petroliferos
Fiscales Bolivianos (YPFB). Venezuela has also offered Bolivia military aid to bolster its
defences, a controversial move which has been viewed as an attempt by Venezuela to
stake out a military presence beyond its own borders. Chávez has made frequent visits to
Bolivia, as has Morales to Caracas.

Advocating South American integration, President Hugo Chávez oversaw the signing of
contracts in 2008 with Argentine firms to construct “Socialist Factories” in Venezuela
and inaugurated joint oil exploitation in the Orinoco River Belt with Ecuador. In the
Orinoco Oil Belt PDVSA, Venezuela’s state controlled oil corporation, has formed
mixed enterprises, maintaining at least 60% control, with oil companies from Brazil,
Belarus, Malaysia, Uruguay, Argentina, China, Russia, India, Iran, Paraguay, and
Ecuador to exploit what the Venezuelan government says is the world’s largest reserve of
oil, estimated at over 235 billion barrels of oil.

Argentina and Venezuela signed accords to exchange Venezuelan oil for Argentine food
earlier this year, and Venezuela has bought several billion dollars worth of Argentine
foreign debt over the past three years. To boost Venezuela’s steel and construction
industries, the public industrial supplies company SUVINCA signed a $4.76 million
contract with the Argentine firm IVANAR to supply Venezuela with materials to produce
metal tubing and construct storage facilities, fences, and houses.

The governments of Venezuela and Argentina have also endorsed four training and
agricultural agreements. The first is an integral cooperation agreement signed by the
Venezuelan Light Industries and Trade Ministry and the Argentinean National Institute of
Industrial Technology (INTI) according to which the latter will provide advice, training,
technical assistance and specialized service to Venezuela’s Autonomous Service of
Normalization , Quality and Technical Regulations.

Second is an agreement to acquire agricultural units inked by Venezuela’s Agricultural

Corporation Autonomous Institute and the Argentinean Chamber of Manufacturers of
Agricultural Machinery. Third is an agreement signed by Venezuela’s Ministry of
People’s Power for Agricultural and Lands and the Secretary’s Office of Agricultural,
Fishing and Food of the Argentinean Economy and Production Ministry. Fourth is a
cooperation agenda for the industrial technological development endorsed by
Venezuela’s National Institute of Socialist Education and Training (INCES) and
Argentina’s INTI to carry out a plan of work and strengthen the possible spaces of
cooperation.

Venezuela and Ecuador are the first and fifth largest oil producing nations in Latin
America. In 2007 the two nations signed nine energy accords in a move that
strengthened the already close links between the two governments. As part of the
agreements Venezuela’s PDVSA will send 220,000 barrels of diesel fuel per day while
they will receive from Petroecuador 35,000 barrels of heavy crude over the next five
years. The energy cooperation agreements were part of Petroandina and Petroamerica,
through which Venezuela pushed energy integration throughout Latin America over the
past few years.

Though Brazil’s President Lula da Silva’s governing style and ideological roots are
different from those of Chávez and has shown far more willingness to engage the U.S.
diplomatically than other countries in the region. The attitude of Uruguay President
Tabaré Vazquéz is more in line with Lula and Chile's Michelle Bachelet than Chávez'.
However, Silva, viewed by Washington and the U.S. corporate media as part of the
"acceptable" left, declared in 2007 that developing nations must create their own
mechanisms of finance instead of suffering under those of the IMF and the World Bank,
which are institutions of more developed nations.

Relationship with the US

US-Latin American relations fell to record lows during the Bush presidency. Tensions
have been bristling between the two nations ever since April 2002 when Chavez, the
democratically elected president, was briefly removed from power in a coup, backed by
the US. The rejection of Washington's Free Trade Area of the Americas (FTAA), marked
the beginning of an outright challenge to free market orthodoxy, U.S. hegemony, and
corporate power.
In November 2006, Venezuela's bid to attain a non-permanent seat on the United Nations
Security Council ended in failure when, after, it could not gather enough votes to out-
and-out remove Guatemala. Guatemala was in exactly the same position as well. The
result was a blow to both Venezuela and Guatemala - and by extension, the United States,
which had strongly backed Guatemala against Venezuela. Consequently, the countries of
the Western Hemisphere reconvened to submit a consensus candidate, and chose Panama.

In September 2008 Venezuelan President Hugo Chavez expelled the US ambassador in

Venezuela in a gesture of solidarity with Bolivia, who had expelled its US ambassador in
response to evidence that the ambassador had met with separatist opposition groups, and
incited the Bolivian unrest. The US then removed its ambassador from Venezuela.

Since Barack Obama became president of the US in January both countries' presidents
have expressed a desire to restore relations. In June 2009, the Venezuelan ambassador to
the United States, Bernando Alvarez, re-took his position in Washington, and the US
ambassador to Venezuela, Patrick Duddy, returned to Venezuela.

Middle east

Chávez, a consistent critic of U.S. and Israeli militarism, expelled the Israeli ambassador
from Caracas and formally broke off relations with Israel in early January, to protest the
U.S. ally’s occupation and invasion of the Gaza Strip.

Venezuela-Israel relations have been strained for many years. Israel has opposed
Venezuela’s growing economic and political relationship with its enemy Iran. President
Chávez says the partnership is part of his plan to construct a “pluri-polar world” that is
not dominated by the United States and Europe.

Also, Israel and Jewish organizations in the U.S. have accused both Iran and Venezuela
of supporting radical Islamic groups such as Hamas and Hezbollah in Latin America and
the Middle East—an accusation that Venezuela’s foreign minister vehemently denied
recently.
The current presidents of Venezuela and Iran, President Hugo Chávez and President
Ahmadinejad, have both described themselves as against US imperialism. Maintaining
this Ideological standpoint, strong ties exist between the two countries in energy
production, economic, and industrial cooperation.

Venezuela’s growing military power

Venezuela has no history of armed conflict with its neighbours, but low-key territorial
disputes with Guyana and Colombia persist. A bilateral commission with Colombia and a
UN Good Offices process, in the case of Guyana, are addressing these issues.

Columbia’s historical tensions with Venezuela date back to pre-Chávez years. However,
chronically strained relations between Colombian President Uribe and Chávez have not
helped this situation. Tensions have come about, among other factors, from Chávez
declaring his sympathy for the FARC, the Colombian narco-terrorist group .Chávez and
President Uribe of Colombia exchanged harsh words in late 2007, following Uribe's
decision to end Chávez's formal mediation role to encourage the release of hostages by
the FARC. Relations deteriorated further in the first months of 2008. President Chavez
ordered military battalions to the border with Colombia in response to a Colombian
military incursion into Ecuadorian territory (ruled by his like-minded friend Rafael
Correa). Following an OAS meeting that situation subsided and diplomatic relations
improved. In July 2008, following the success of a Colombian military operation to
rescue 15 FARC hostages, Presidents Chavez and Uribe met in Venezuela, with the aim
of normalising relations. Colombia is the largest recipient of U.S. assistance in Latin
America.

Venezuelan President Hugo Chávez is widely acknowledged as having carried out an

aggressive policy of military acquisitions in recent years, which has had far-reaching
implications particularly through purchasing Russian military equipment.

A key facet of the Russian-Venezuelan partnership has been Chávez's continued interest
in purchasing state-of-the-art Russian weaponry. This process can be traced back to 2006,
when Russia rejected US pressure to reconsider plans to sign arms sales agreements with
Venezuela. The deals involved the purchase of at least 22 sukhoi-30 Russian jet fighters
that will replace Venezuela’s aging F-16s. Also purchased were around the same number
of helicopters and a number of other smaller agreements.

Venezuela has looked to military arms distributors other than Russia for political reasons
and in order to diversify its suppliers. All ten radars should become operational by 2013.
Reports in February 2009 established that Venezuela had purchased 24 K-8 Karakorum
trainer/light fighter planes from China. The first six will be delivered in early 2010 and
will be used for anti-drug and training operations, according to Caracas.

Venezuela looks to further strengthen ties with China and India

In order to diversify the Venezuelan market for oil, Chávez has made plans to begin
shipping Venezuelan crude to China, the world's second-largest energy consumer after
the United States. What is more, Chávez stated that Venezuela wanted to become a
"secure, long-term" petroleum supplier to China. The two countries signed a deal that
would allow Chinese firms to operate 15 mature oil fields in the east of Venezuela, which
could produce more than one billion barrels.

Transporting oil to Asia, however, could prove logistically difficult. The State-owned
Petroleos de Venezuela SA (Pdvsa) has articulated interest in moving oil across Panama
to the Pacific Ocean via pipeline. The company is also exploring the idea of building such
a facility across Venezuela’s northern border with Colombia, extending to that country’s
Pacific coast. Shipping oil to Asia carries other logistical and infrastructural problems.
China presently has an insufficient deep conversion refining capacity and transporting
petroleum to the Asian giant would be costly due to the long distances involved.
Furthermore, the Panama pipeline coveted by Chávez already transports 100,000 barrels
a day of Ecuadorian crude from the Pacific to the Atlantic. According to analysts, there is
no way that the pipeline can be converted into being able to simultaneously ship
Venezuelan oil to China in the opposite direction. Finally, China may be only interested
in Venezuela in the short run, as Beijing is exploring for oil and gas closer to its shores in
the South China Sea.

Any interruption in Venezuelan oil exports to the U.S. would bring significant disruption
to both countries and Washington is beginning to plan for such a contingency. Oil
accounts for half of Caracas’ revenue and a majority percent of its exports. Currently the
U.S. purchases 60 percent of Venezuela's oil exports and according to analysts, finding
new markets could prove daunting to Venezuelan authorities.

India

Venezuela and India teamed up to explore and produce oil and natural gas in eastern
Venezuela. State-owned Petroleos de Venezuela SA, or PDVSA, will hold a 60 per cent
stake in the joint venture, Venezuelan Oil Minister Rafael Ramirez said. The rest will be
controlled by Oil and Natural Gas Corp., or ONGC, India's top petroleum exploration
company. Ramirez said ONGC will invest US$450 million (euro290 million) in the
project, known as Petrolera IndoVenezolana.
Venezuela estimates that over the next 25 years, the venture will yield 232 million barrels
of crude from the San Cristobal oil field, which spans 62 square miles (160 square
kilometers) in the eastern states of Anzoategui and Guarico. Production is expected to
begin within three years.
Ramirez said the agreement is "a first step" toward further energy cooperation between
the two countries, saying that Venezuela plans to ship 150,000 barrels of heavy crude a
day to India.