A Venezuelan Rebel Who Already Sounds Less Rebellious

The populist Chavez shows signs of pragmatism

Mired in poverty despite their country's oil wealth, the 200,000 residents of La Vega, a shantytown in the hills around Caracas, are looking to Hugo Chavez Frias with hope. An outpouring of votes from La Vega and other poor districts helped Chavez, a political outsider who promises radical change, win by a landslide in Venezuela's Dec. 6 presidential election. His victory ended four decades of corrupt rule by entrenched centrist political parties. Now, says Peter Plaz, a 33-year-old shuttle-bus driver from La Vega: "If he delivers half of what he's promising, our lives will get much better."

For Chavez, who takes office on Feb. 2, it's a formidable challenge. After his first bid for power, a failed 1992 military coup, the 44-year-old former army paratrooper spent two years in prison and earned a graduate degree in international relations. Now, the charismatic populist feels he is on a quasi-religious mission to return power to the people and end deep-rooted economic mismanagement. What traditional business interests fear, though, is that Chavez, backed by a leftist coalition, may not only dismantle their privileges but also spur inflation by ramping up spending.

The economy Chavez inherits is a shambles, with plunging oil prices threatening to shrink gross domestic product by as much as 3% in 1999. That may produce a fiscal deficit equal to nearly 10% of GDP. Moreover, Venezuela's bolivar is estimated to be 30% overvalued--a vulnerable pressure point at a time when Brazil's currency crisis is roiling the region. If Chavez fails to produce a convincing plan to reduce the deficit soon after his inauguration, he may be forced to devalue the currency.

BREATHTAKING. Now, facing the enormity of Venezuela's problems, Chavez is softening his populist rhetoric. In a meeting with President Clinton on Jan. 27 and in subsequent talks with businessmen in New York, Chavez is expected to stress that his drive to eliminate corruption and tax evasion will make Venezuela a better business partner. That's the same message he conveyed during recent tours of Europe, Canada, and Latin America. "It's going to be even more attractive to invest here," Chavez said after his return.

Indeed, his swift turnaround on key issues has been breathtaking. During the campaign, he talked of selling off overseas assets of state oil company Petroleos de Venezuela (PDVSA). Now he has dropped such talk, clearly reflecting the recognition that PDVSA accounts for 80% of Venezuela's export earnings and 50% of its tax revenues. Chavez also spoke during the campaign of a moratorium on foreign debt. Now, aware that global markets would punish such a move by shutting off credit, Chavez instead says he'll try to win easier terms on debt payments due this year. "He doesn't have a very clear idea of what he's going to do with Venezuela's economic and social problems, but he seems to be a quick learner," says Janet Kelly, coordinator of the Public Policy Center at Caracas' Institute of Graduate Administration Studies.

One worry is that Chavez could trigger a political crisis by attempting to bypass Congress and rule by decree. "We would have to think about dissolving Congress," Chavez warned on Jan. 18, if legislators block his proposal for a constituent assembly to rewrite the constitution. The constitution must be overhauled, Chavez says, to give him the tools for reforms from tax crackdowns to labor law revision.

But to end Venezuelans' decades-old dependence on oil-financed government largesse, Chavez appears convinced that he needs the engine of private enterprise to help diversify the economy. "He realizes that most of the money to generate wealth and jobs to improve Venezuela's standard of living is going to come from private investment," says Jose Rafael Rivas, public and government affairs director for Procter & Gamble de Venezuela.

For market researcher Edmond J. Saade, head of Datos Information Resources, the big question remains: "How can we balance the sweet expectations and promises from Chavez with the very bitter realities we face?" What's hopeful is that populist Chavez is looking to business and the market for some of his answers.