Schadenfreude Alert: Chavez Is Struggling

TW: What goes up can go down. Hugo Chavez perhaps more than any other dictator benefited from soaring oil prices. As those prices have plunged and even with the recent partial rebound, Chavez' political strength has suffered.

A negative externality associated with fossil fuels is propping up poorly run governments, especially those hostile to the U.S. Developing policies to ensure oil prices remain stable and contained can pay benefits far beyond our balance of trade and putting more bucks into our consumers' pockets.

From Economist:
"...inflation is close to 30%, real wages are falling and welfare schemes have suffered big cuts in their budget. The mood on the streets of poorer suburbs of Caracas, the capital, is glum.

...Officially, unemployment is stable at around 7%...According to the Central Bank, the economy grew by 0.3% in the first quarter compared with the same months of 2008. Construction is supposed to have expanded by 3.6%. But some economists doubt the figures.

Public investment is under strain. This month, for example, the boss of Caracas’s metro system announced a review of a new line already under construction, with the probable scrapping of two stations.

...Food consumption among poorer Venezuelans may be declining...Opinion polls reveal a sharp rise in worries over the cost of living. The government’s answer to years of persistent inflation has been price controls and Mercal, a state-owned and subsidised grocery chain that offers a limited selection of staples at discounts of up to 40%. But Mercal’s sales fell by more than 11% in the first five months of this year, partly because of store closures and distribution problems.

...The most popular of Mr Chávez’s social misiones is Barrio Adentro, which includes a network of primary-health centres initially staffed by thousands of Cuban doctors. But many of these have also closed. Poorer Venezuelans must rely on rundown public hospitals, which have been starved of funds under Mr Chávez.

...oil output has been falling. When the oil price plunged last year, its direct transfers to welfare programmes fell to $2.7 billion, from $7.1 billion in 2007.

...On the face of things, the recent recovery in the price of oil to around $70 a barrel should enable Mr Chávez to muddle through without radical shifts in policy...To sustain public spending at its peak level without deficits would have required Venezuelan oil to sell at an average of $90 a barrel last year

...Mr Chávez’s hopes of remaining in power for decades to come depend, as ever, on the price of oil."
http://www.economist.com/world/americas/displaystory.cfm?story_id=13864830

Harper Gets It Even If Newt Does Not

From NBC:
"...Canada's conservative Prime Minister Stephen Harper vigorously defended President Obama's handling of Hugo Chavez at this weekend's summit...Harper said that he is a conservative, but thinks that Obama's handling of Venezuela was effective at advancing America's values and interests.

"Let me be a bit of a conservative defender of the president in this regard," Harper said. "I was present obviously at all the meetings -- not the meeting between President Obama and the South American leaders, obviously wasn't at that. But I was present at the summit meeting, all of the plenary sessions."

"I thought President Obama did an excellent job of expressing the values, and priorities of the U.S. of America," he added. "I thought that he allowed ... a dialogue to take place in a good spirit to animate the room -- which I thought made the meetings productive. I think [it] made the U.S., took the U.S. to a higher plane than the Venezuelas of the world, and I think was very effective at moving the vast majorities of countries, reaffirming a very centrist position and very progressive position on the things that concern us: democracy, human rights, open markets, trade."

Harper concluded, "I know he got some criticism at home. But, you know, the U.S. is bigger than Venezuela in the end. The U.S. is the U.S., and I thought President Obama led in a way that was very effective at that conference."

TW: A nice segue from this morning's earlier post. Steve Harper hits the nail on the head: "the U.S. is bigger than Venezuela in the end". We can go into meetings and summits as a leviathan/bull in a china shop and try to steamroll everyone or we can move a little more subtly. The U.S. (inc. under Obama) bullies plenty of folks, we just do not need to do so every freaking time just to that insecure segment of our populace feel so.

ps: another quote from NBC: "...Why is Chavez fawning? Because Obama might be more popular in Venezuela than Chavez is right now"

Oil Schadenfreude?

TW: Plummeting oil prices help US consumers (at least in the short run as if everyone runs back to their SUVs then we can safely expect oil crunch 2.0 in 2010 or 2011). But the producers who are generally poorly governed by oligarchs with dubious competence (Chavez/Nigeria) or expensive nationalist appettites (Putin), the prices are highly problematical. The chart above (from Barry Ritholz's blog) shows estimated (I emphasize estimated because who really knows) breakeven price per bbl needed by various countries in order to fund their 2009 spending (note Russia is not on the chart but has a $70ish breakeven). With oil at $45/bbl and perhaps headed lower, they all have issues some worse than others.

Nigeria is a mess whose problems seem to get worse as oil prices go up (their fundamental problem is crime so lower prices just means less to fight over), so they are not the big problem. The Saudis/Kuwaitis/UAE have been through this before, they will have less to invest which has implications for sure but is not existential. Russia and Venezuela are the ones to watch. Putin and Chavez have built their political power on the back of high oil and bombastic nationalism, good luck to both in 2009.