Create a free account to continue

An Oil Bonanza Squandered?

While oil has ushered in spectacular construction projects for glittering Middle Eastern cities, including the world's tallest building in Dubai and plans for branches of the Louvre and Guggenheim museums in Abu Dhabi, it's brought relatively meager changes to Venezuela, which holds the world's largest proven oil reserves.

CARACAS, Venezuela (AP) — On the streets of Caracas, vast slums blanket the hillsides while squatters hang laundry in the windows of abandoned buildings. Trash-strewn alleys are riddled with potholes and lined with broken streetlamps. The city's main waterway, the polluted Guaire River, is known more for sewage than swimming.

While oil has ushered in spectacular construction projects for glittering Middle Eastern cities, including the world's tallest building in Dubai and plans for branches of the Louvre and Guggenheim museums in Abu Dhabi, it's brought relatively meager changes to Venezuela, which holds the world's largest proven oil reserves.

Nearly 14 years after President Hugo Chavez took office, and despite the biggest oil bonanza in Venezuela's history, there's little outward sign of the nearly one trillion petrodollars that have flowed into the country.

Venezuela has undoubtedly changed during Chavez's tenure. The populist president has used the oil wealth to buttress his support through cash handouts, state-run grocery stores and a gamut of other social programs. With more money in the economy, incomes are higher and the number of people living in poverty has fallen.

Unemployment has dropped from more than 13 percent in 1999 to about 8 percent. The country has also achieved rapid improvement on the U.N. Human Development Index, which measures a range of indicators from living standards to life expectancy.

"We're applying a successful program — successful politically, successful socially, successful economically," Chavez said at a news conference. "With flaws, of course, but it's successful. We're laying the foundations of a historic project that will take our entire lifetime."

All of which makes him a tough incumbent to beat in the upcoming Oct. 7 election.

Yet some experts say Chavez could have done much more to improve the country's infrastructure, boost its economy and invest in the very oil industry that keeps Venezuela afloat.

"It's overwhelmingly clear that Venezuela has wasted the windfall," said Francisco Monaldi, an economist and director of the International Center of Energy and the Environment at Caracas' IESA business school. "You should have had much greater economic growth, much greater reduction of poverty."

Among Latin American countries, the economies of Brazil, Chile, Peru and Argentina all have expanded more rapidly than Venezuela's since Chavez took office in 1999, recording average growth between 3 and 5 percent a year.

Venezuela, by contrast, averaged a 2.8 percent annual increase of gross domestic product between 1999 and 2011, according to International Monetary Fund figures. By that measure, the country was outperformed by every other member of the Organization of Petroleum Exporting Countries except Libya. Even war-torn Iraq posted higher growth.

Some Venezuelans, such as tennis instructor Naybeth Figueroa, say Chavez has simply channeled money toward his "Chavista" supporters while neglecting deeply ingrained problems such as soaring murder rates, inflation, crumbling infrastructure and poor government services. Venezuela now ranks among the most violent and corrupt places on earth.

"The country is falling to pieces," Figueroa said. "Where is the oil money going?"

Where the money went

On a rutted unpaved road in the countryside outside Caracas, unemployed housewife Moreli Gonzalez lives in a shack with a dirt floor and walls made of rusting sheets of zinc. She is thankful to Chavez that she now receives a $280-a-month cash benefit through a program called "Mothers of the Neighborhood Mission."

"Now we have everything," said Gonzalez, who credits a government education program with helping her learn to read — and a state-run grocery down the road that has made food more affordable.

"We eat better," she said, showing off cupboards filled with bags of rice and pasta. "My children didn't used to eat snacks. Now they eat well."

The government programs for the poor are why Oil Minister Rafael Ramirez recently boasted: "This was one country before President Chavez's government, and a different one afterward."

He was referring to the more than $300 billion that the government has spent during Chavez's tenure on "social development," including health care and education.

It's been made possible by oil prices that have shot up, sending more than $981 billion in revenues to the state oil company, Petroleos de Venezuela SA, between 1999 and 2011.

Some economists say that given the boom, it's little wonder Venezuelans living below the poverty line declined from 50 percent in the first half of 1999 to about 32 percent in the second half of last year.

"There are people here who are eating meat who didn't used to eat meat. But is that due to Chavez? That's not due to Chavez. That's the result of the changes in the price of oil," said economist Angel Garcia Banchs, director of the consulting firm Econometrica.

The state oil company's contributions to the government have more than tripled, from $16.5 billion in 2004 to $58.6 billion last year.

And it's not all going to social programs. Chavez has spent billions on the military, buying up Russian-made fighter jets, helicopters and rifles.

University enrollment has also more than doubled. Low-income students now attend the tuition-free Bolivarian University, which was established on the leafy campus of a former state oil company office building.

One of the biggest expenses, though, has simply been supporting a growing bureaucracy. The number of public employees has ballooned during Chavez's presidency, from about 1.3 million to 2.4 million. And Chavez has made clear that if he's re-elected, "that's going to keep going up."

Black gold — but not for everyone

When a powerful explosion rocked the Amuay oil refinery last month, killing at least 42 people, several experts swiftly blamed the country's worst-ever refinery disaster on a lack of maintenance.

Last month, a deadly prison riot killed more than two dozen in an overcrowded penitentiary, the latest in a rising tide of bloodshed that left 560 people dead in the country's prisons last year.

That disconnect, between falling poverty and worsening infrastructure, points to what critics say has been a failure to address the underlying causes of many of the country's ills. Yes, government food giveaways mean millions of poor people have more to eat, but critics argue that Chavez's largesse has ignored basic remedies needed to modernize the nation.

While campaigning ahead of the presidential vote, opposition candidate Henrique Capriles has argued that more should have been spent to improve police forces, build water systems and invest in the oil industry instead of, among other things, "giving away" oil wealth through fuel deals with allies such as Cuba and Nicaragua.

Official figures support some of the criticism. The murder rate more than doubled during Chavez's presidency. Dangerous slums have proliferated, with the number of homes deemed "inadequate" growing from 295,000 in 1999 to more than 404,000 last year.

Chavez defends his record, noting that Venezuela has invested billions in refinery maintenance, is building a new national police force and is starting to make revolutionary changes to "humanize" an overcrowded prison system.

Even in areas where Chavez has targeted spending, results have often been elusive.

For example, the president says he has revolutionized health care by setting up free clinics staffed by Cuban doctors in poor slums across the country. But hospitals have lagged behind, with officials figures showing the number of available hospital beds down from 28,000 beds in 2000 to 22,000 in 2010.

By some accounts, inadequate maternity wards have bumped women in labor from one public hospital to another. Opposition politician Carlos Vecchio posted photos on Twitter showing patients lying on the floor at a hospital emergency room in Maturin.

Despite more health care spending, the government's programs have worsened due to "inefficiency, ineffectiveness and incompetence," said Dr. Carlos Walter, a former health minister and director of the Center of Development Studies of Central University of Venezuela.

In his handling of the economy, Chavez has emphasized a bigger state role, and while he has expropriated businesses from cement plants to retail stores, economists say private investment has suffered.

Even as it battles an 18 percent inflation rate, Venezuela remains perilously reliant on oil, which accounts for 95 percent of its export earnings.

"I think that in the long term, we're headed for a situation of poverty. If oil income starts to run out, if the prices fall too much, there's no productive engine here that can feed us," said Margarita Lopez Maya, a historian at Central University. "But while the price of oil is so high, fantasies can be paid for."

The price of 'fantasies'

On the stump, Chavez is good at painting a glowing picture of a Venezuela undergoing nothing short of a nonviolent revolution.

He appears on television inspecting row upon row of new government housing and touts the hope he's given the country's poor. Venezuela has shown a new model is possible, he says, one that breaks from the profit-driven order espoused by the U.S. and its allies.

Chavez recently boasted to reporters: "Today, the model is working."

For many of Chavez's followers, that world is real. They've seen new public health clinics open in their gritty neighborhoods. They know that thousands of people will be able to move into new government housing.

"There's been a vast improvement in the living standards of the vast majority of the country. That's why they've won all those elections," said Mark Weisbrot, an economist and co-director of the Center for Economic and Policy Research in Washington.

Yet one thing Chavez hasn't discussed on the campaign trail is the burden his programs have placed on the country's treasury.

Despite the oil boom, the government has more than tripled its public foreign debt from $24.2 billion when he took office to $88.7 billion in the first quarter of this year. Much of that foreign money has come from China, which has lent Venezuela more than $36 billion.

By contrast, other oil-rich nations such as the United Arab Emirates and Norway have saved billions in investment funds.

"If you look at how much money has come into the country, of course it looks like he hasn't been a very good steward of that money," said David Smilde, a sociology professor at the University of Georgia.

"They've done some good things and they've made some progress, but I don't think they've done anything that's very sustainable. So in that sense, I don't really think it's a successful model that anyone would want to replicate."

Nonetheless, many Venezuelans are still prepared to support Chavez. Conflicting polls showing him either with a double-digit lead or roughly even with Capriles.

Jose Gregorio Oropeza, a vendor who sells cold drinks from a roadside stand, raves about the free health services and the state grocery stores.

"Now that cash comes from oil," Oropeza said. "My economic situation has gotten better in these years of President Chavez."


Associated Press writer Adam Schreck in Dubai, United Arab Emirates, contributed to this report.


Ian James on Twitter: