Venezuela's Oil Wealth Funds Gusher of Anti-Poverty Projects

by Robert Collier

San Francisco Chronicle, October 2, 2006

Hugo Chavez's revolution came to the hillside slum of San Juan one recent night in the glare of a solitary lightbulb and with puddles from a recent thunderstorm still underfoot.

Two dozen people clustered on a rooftop to debate the money and power that suddenly seemed within their grasp -- everything from home construction to bank loans, street repairs, and after-school and vacation recreation programs for children.

It was the first meeting of San Juan's communal council, an example of a new grassroots governing structure that is spreading across Venezuela. Like thousands of other such newly elected councils, the San Juan group will soon be given previously unheard of sums of money by the central government in what Chavez calls "a revolution within the revolution."

While the Venezuelan president has caused international controversy with his angry denunciations of the Bush administration, this is where the rubber meets the road for Chavez's radical rhetoric. He is spending billions of dollars on anti-poverty programs, in what experts say may amount to the largest such effort in a developing nation.

And in a gamble that turns part of his own government's power structure on its head, he is handing a large degree of authority over these spending programs to thousands of these elected local councils.

"The issues in these neighborhoods are very old fights -- water, land, decent housing," said Andres Antillano, a professor of social psychology and criminology at the Central University of Venezuela in Caracas who has been an adviser to many neighborhood groups.

"For many years, the only relationship with the state was the police. They came here and put everyone against the wall," Antillano said. "Chavez has chosen to gamble on legitimizing these issues. The communal councils are a very serious attempt at grassroots organizing."

The policy appears especially popular in the hard-bitten slums of Caracas -- although as is true elsewhere around the country, the electorate seems divided between a strongly pro-Chavez minority and an apathetic majority. San Juan's new council was chosen in local voting a week previously, with only 330 of the neighborhood's 916 eligible adult residents casting ballots.

"We like Chavez because he's giving us control," said Leomar Aquino, who had just been chosen head of the Education, Culture, Recreation and Sports Committee, one of a half-dozen such panels on the council. "If you don't want to participate in it, hey papito, that's your problem."

On this night, nobody seemed to know exactly how much their neighborhood would receive. Nor, the next day, did anyone at the offices of the local district government or in the central government buildings downtown.

What is certain, however, is that Venezuela's petroleum export earnings are rising rapidly, and the government is spending the money with abandon.

The government initially budgeted $857 million for social spending in 2006. But as oil money floods in, officials keep increasing the amount. It now stands at $7 billion, although many experts view that figure as a guesstimate of money being spent on the fly.

Public works projects are everywhere, ranging from subway lines in Caracas and Valencia to bridges over the Orinoco River. New medical clinics -- mostly staffed by Cuban doctors provided under Chavez's oil aid program to Fidel Castro -- are within reach of almost everyone in this nation of 25 million people. Illiteracy, formerly at 10 percent of the population, has been completely eliminated, and infant mortality has been cut from 21 deaths per 1,000 births to 16 per 1,000.

Another initiative that could change the lives of millions of poor Venezuelans is a new program aimed at increasing land ownership.

Venezuela is the most urbanized nation in Latin America, with about 86 percent of its people living in cities, but about one-third of those urban dwellers have no title to their land. In legal terms they are squatters, and thus cannot access many government programs.

Over the past year, 57 cooperatives of land surveyors have been formed to scour Caracas' hillside slums, measuring the sprawling neighborhoods that previously were merely blank spaces on official maps.

Ivan Martinez, director of the Urban Land Committee titling office for Caracas, said that more than 200,000 titles had been given out, involving about 1 million people.

"People now can get basic services," he said. "We can hook them up to water, electricity. We can help rebuild their houses. It's a huge change."

In San Juan, people are already hard at work.

Down the hillside from where the communal council was meeting, another council had already put its new powers to work. Using money and technical assistance from the state-owned oil company, PDVSA, and the water utility, Hidrocapital, it has hired local residents to install more than a mile of pipes in nearby streets.

"My street, around the corner there, was recently hooked up," said one worker, Beyser Bernal, putting down his shovel. "Before, we had it pirated, we hooked it to the main through a bunch of pipes that were broken, like those electricity wires," he said, pointing to a spider's nest of wiring overhead where residents had jury-rigged their homes into the electrical grid.

"The water just dripped out, and it was dirty. Now it comes out great, and it's clean. My whole family is happy."

But for many, progress is not happening fast enough -- and they blame the government.

"Chavez is working well," said Manuel Hernandez, a Caracas firefighter, who lives in San Juan. "My aunt was sent to Cuba to get her eyes operated on. But the people around Chavez are very bad. There is too much waste, too much corruption."

Chavez, who has been in power for seven years, often rails against the government bureaucracy as if he were an outsider. While Venezuela's government has long been known for its inefficiency, many people say the problem under Chavez has worsened.

At a ceremony April 9 to inaugurate the communal council program, Chavez acknowledged this perception.

"Many are saying that this is just Chavez's plan to corrupt the people, that now Chavez will spread money all around so people can go party and drink miche," he said, referring to a homemade liquor popular in the western mountains. "They say that everything will be wasted. But we're going to demonstrate what the Venezuelan people are capable of."

Some analysts point to the more than 100,000 cooperatives created under Chavez, a program that has broad public support yet also is viewed as having fostered waste and graft. They say the rules giving preference to cooperatives in the letting of state contracts -- including more than $200 million worth from PDVSA alone -- have prompted thousands of private companies to convert into cooperatives in name only.

"Chavez is spending so quickly, with such a lack of oversight, through a parallel state apparatus, that corruption easily could spin out of control," said Teri Karl, a political science professor and Latin America specialist at Stanford University.

Suspicions are so widespread that they have become the stuff of popular legend. Virtually every Venezuelan seems to know someone who formed a bogus cooperative in order to receive a large loan from a state-owned bank, then declared bankruptcy and pocketed the money, only to be allowed to repeat the process, milking the government for larger and larger sums.

"There is a problem of accountability, it's very true," said Griselda Olvero, president of the San Juan parish council, the local government for 110,000 residents in the San Juan area.

She spoke while busily signing checks in an office decorated by posters portraying leftist icons ranging from Yasser Arafat to Moammar Khadafy, Fidel Castro and Patty Hearst, along with Venezuelan independence hero, Francisco Miranda. The largesse went for public works and supply contracts, welfare assistance of all kinds, and one-off payments to "people with special needs, who asked for our help," she said. One of the checks was to a 10-year-old girl who played in a band so she could replace her broken violin.

"We're doing our best, but there is no way to track all this," she added as her assistants lined up at her desk with more checks to sign.

The result of all this spending has contributed to a red-hot economic boom, with gross domestic product growing at 9.3 percent last year and 9.6 percent for the first half of this year. And there's plenty more money to spend -- central bank reserves are at $36 billion, and other government rainy-day funds hold an estimated $15 billion. Inflation is 14 percent, a relatively moderate rate by traditional Venezuelan standards, and is held in check by subsidized prices at state-owned stores and by government price controls.

Chavez opponents accuse him of trying to buy loyalty. "This is a colossal waste of money," said Alberto Quiros, an oil industry analyst in Caracas. "Just when you think Chavez couldn't get farther from the laws of the market and common sense, he proves everyone wrong."

Stanford's Karl, who studies the development strategies of oil-producing nations, said Chavez's push to address poverty is "truly huge, and long overdue, but very risky."

"Because all this spending is not tied to any larger effort to increase economic competitiveness, because it's all based on the distribution of oil income, it's not at all sustainable," she said. "If the price of oil goes down, there could be a crash."

Chavez has said that although international oil prices have dropped recently, his spending programs can continue unimpeded as long as the international price of oil stays above $50 a barrel. As of Friday, the price was about $63.

For Chavez's supporters among the poor of San Juan, a big worry is making sure that the money for their own neighborhood doesn't get stolen.

"We're going to get huge amounts of money, and I barely know how to manage my own (home) budget," said the newly elected budget director, Hector Carvajal, speaking to his fellow council members on the rooftop. "Please, I need training. I don't want anyone to blame me for even one bolivar missing."

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