Venezuela's economy is booming, expanding by more than 20 percent over the last two years as the price of oil, the country's principal export commodity, has surged. But despite record economic growth and unprecedented oil revenue, economists note with alarm that the government of President Hugo Chavez is spending more than it takes in, and they question whether massive public expenditures are leading to productive investments for the future.
2004 saw Venezuela's biggest economic expansion on record, at just over 17 percent of gross domestic product. Economist Orlando Ochoa says growth is continuing this year.
"The Venezuelan economy is growing," he said. "For 2005, we are registering growth of seven to eight percent."
What is driving the boom? In a word: oil. Revenue from oil exports has tripled from $12 billion in 1998 to an expected $36 billion this year. Where is the money going? Orlando Ochoa says, as fast as revenue is pouring into President Chavez' coffers, it is pouring out even faster to pay for massive social programs as well as regional initiatives, like the purchasing of Ecuadorian and Argentine debt.
"The problem with this current expansion is that it is being driven by public sector spending, extraordinary oil prices, and debt creation, and is therefore unsustainable in the long-term," he said.
Economists like Mr. Ochoa worry that the Chavez administration is assuming ever-higher oil prices year after year, and that even a slight moderation in world prices could throw the country into a fiscal crisis.
Venezuelan Vice President Jose Vicente Rangel said the need to fight poverty outweighs concerns about the deficit.
"We have many problems to overcome that stem from a long history of social inequalities," he said. "We must invest a great deal of money [to combat them]. And so, if it is necessary to place the country in debt and raise the deficit in order to reduce poverty levels, we will do it."
Venezuela's oil wealth has brought the country new leverage and influence within the hemisphere. Venezuela has signed deals to provide more than a dozen Caribbean nations with oil at a discounted rate in return for goods and services. One special case is Cuba, which has dispatched thousands of doctors to tend to Venezuela's poor under a bilateral cooperation pact that provides Havana with inexpensive fuel.
Oil accounts for 80 percent of Venezuela's exports, and the largest purchaser is the United States. But President Chavez has threatened to cut off U.S.-bound oil shipments, accusing the United States of harboring plans to invade his country. The Bush administration denies the charge, and the U.S. Ambassador in Caracas, William Brownfield, says whatever differences exist between Washington and Caracas, their long-standing energy relationship should be preserved.
"Venezuela and the U.S. are natural partners in oil for simple, common sense, geographic reasons. A barrel of oil that departs a Venezuelan port arrives at a U.S. refinery in five to six days," Mr. Brownfield said. "That same barrel, going to a place like China, for example, requires 46-50 days to get there, and then arrives at a refinery that is not tooled to process that particular grade of oil."
Analysts say Venezuela needs oil revenue from the United States just as badly as the United States needs fuel from Venezuela, and that a cut-off of crude shipments is unlikely. Nevertheless, Venezuela is looking to diversify its global energy relationships, and the country's state-owned oil company recently opened an office in Beijing.
Whether Venezuela's oil wealth is being put to good use is a matter of debate. President Chavez points out that, under his administration, spending on housing, education, health and food distribution have increased dramatically. Opposition leader Julio Borges of the "Justice First" Party ["Primero Justicia'] says poverty rates are higher now than in 1998 when Mr. Chavez was first elected.
"In terms of benefits from more than $300 billion in oil revenues earned in seven years [since Mr. Chavez came to power], look at the statistics," Mr. Borges said. "When it comes to constructing a stable, open, modern society, this has not been accomplished despite the highest oil prices in world history."
Others say Venezuela's oil wealth is a mixed blessing: a boon to government coffers, but one that promotes a kind of national lethargy, leading Venezuelans to demand redistribution of oil revenue rather than seeking out economic opportunities for themselves.
"Venezuelans believe oil is infinite and superlative," says Caracas public opinion pollster and analyst Alfredo Keller. "Meaning that it can be used to solve everything and will never run out. Nintey-two percent of the people believe that Venezuela is one of the richest countries in the world. But then comes the question: if the country is so rich, why am I so poor? It is this contradiction that generates frustration and a demand for [economic] redistribution."
The Chavez administration insists progress is being made in combating poverty, but that the battle will not be won overnight. As for the future, Vice President Jose Vicente Rangel says he is aware that large oil-consuming nations like the United States want to reduce their dependence on foreign fuel, either through conservation or alternate energy sources.
"The idea that oil will be replaced is something I have heard for many years," Vice President Rangel said. "But it turns out that, everyday, the world needs more petroleum. We have 200 years worth of oil reserves. And not only oil, we have gas - Venezuela is the world's eighth largest producer of natural gas. This is an energy-laden country."