A red military beret atop his head, face beaded with sweat, Hugo Chavez thunders to a throng of supporters in an impoverished Caracas neighborhood that they are living under a pretense of democracy. "We're going to take the state out of the hands of the corrupt and put it into the hands of the people," he booms across a sea of raised fists and red berets. What former army lieutenant colonel Chavez could not accomplish with bullets in 1992, when he led a bid to overthrow then-President Carlos Andres Perez, he is now trying to do with ballots.
He appears to be succeeding: Polls show the 44-year-old son of schoolteachers with 46%, vs. his nearest rival's 41%, in Venezuela's Dec. 6 presidential elections. And his incendiary populist rhetoric, while winning support among the majority of Venezuelans who live in poverty, has stirred fear and loathing among the country's rich and politically powerful. Inevitably, it is sending jitters through the business community and foreign investors as well.
Leaders in the rest of Latin America should take heed. Chavez has tapped into deep resentments over the country's stagnation, despite its oil riches, under a corrupt and ossified political system. "The Venezuelan people today live worse than their grandparents did," says Jerry Haar, director of the Inter-American Business & Labor Program at the University of Miami's North-South Center. President Rafael Caldera, elected to a second nonconsecutive term in 1993 as a reformer, has done little to tackle basic problems from a bloated public sector to massive fiscal deficits that squander oil revenues. One of his actions was to pardon Chavez and release him from jail in 1994.
Although Chavez has backed off from earlier threats to declare a moratorium on the country's debts and "review" contracts of foreign oil companies operating in Venezuela, capital is fleeing. The exodus, along with falling oil prices, has shrunk Venezuela's reserves to $14 billion, from $18 billion a year ago, despite the Central Bank's steep interest rate hike, to 47% currently, to defend the currency.
GRASS-ROOTS STRENGTH. A Chavez victory is still not a sure bet. His closest rival, Yale-educated economist and former state governor Henrique Salas Romer, a free-market advocate, has whittled Chavez' lead in the polls from 20% in August. But state and local elections on Nov. 8 showed that Chavez' Patriotic Pole coalition of 13 leftist groups has grass-roots strength. And if Salas, 62, ekes out a victory by a slim plurality, Chavez followers could shake the country with violent protests, claiming fraud. Regardless of the election outcome, "things are going to get worse before they get better," says J. Antonio Villamil, president of Washington Economics Group, a Miami consultancy.
That prospect, along with the credit squeeze, has virtually halted investment. "I expect a lot of things to be kept completely on hold until we begin to see what Chavez really intends to do and with whom he plans to govern," says Jose Gonzalo Muci, president of BBO Servicios Financieros and a director of the Caracas Stock Exchange. Most businesspeople expect a maxi-devaluation of the bolivar, believed to be overpriced by as much as 40%, followed by rising inflation. Importers, fearing exchange controls, are stocking warehouses with goods from consumer electronics to auto parts. Venezuelans have been moving to Miami, buying houses and opening bank accounts.
SCARED OFF. Chavez likens himself to British Prime Minister Tony Blair, saying he seeks a humane model between hardline socialism and savage neoliberalism. But he has offered few specifics on economic policy. His proposal for a referendum to create a constituent assembly to rewrite the constitution, and possibly dissolve Congress, could provoke a political crisis. And he faces tense relations with Venezuela's armed forces if he is elected.
"There are two opposing Chavezes," says Robert Bottome, a political analyst and director of Caracas newsletter Veneconomy. "One scares away investors, while the other seems moderate and says he will honor trade agreements." Bottome adds: "He may be another Menem," referring to Argentine President Carlos Menem, who campaigned as a populist but later turned into a free marketeer. Menem, however, had spent time in prison as a defender of democracy, not for trying to overthrow it.
Turmoil in Venezuela could hurt neighboring Colombia, a key trade and investment partner. Other Latin countries, less closely tied to Venezuela, may escape the contagion, Villamil expects. But for Venezuelans, the election seems likely to deepen their woes.