American Security Council Foundation (ASCF)

 

The Caracazo and Popular Dissatisfaction

Venezuela's prevailing political calm came to an end in 1989, when Venezuela experienced riots in which 200 people were reportedly killed in Caracas. The so-called “Caracazo” was a response to an economic austerity program launched by then-President Carlos Andres Perez. Three years later, in February 1992, a group of army officers led by then-Lt. Col. Hugo Chavez mounted an unsuccessful coup attempt, claiming that the events of 1989 showed that the political system no longer served the interests of the people. Chavez was convicted of rebellion and jailed for his role in the coup, but was released in 1994. A second unsuccessful coup attempt by other officers affiliated with Chavez followed in November 1992, while Chavez remained in jail. A year later, Congress impeached Perez on corruption charges.

Deep popular dissatisfaction with the traditional political parties, income disparities, and economic difficulties were some of the major frustrations expressed by Venezuelans following Perez's impeachment. In December 1998, Hugo Chavez Frias won the presidency on a campaign for broad reform, constitutional change, and a crackdown on corruption.

Constitutional Reforms

President Chavez also had campaigned for the election of a National Constituent Assembly to write a new constitution. The National Constituent Assembly (ANC), consisting of 131 elected individuals, convened in August 1999 to begin rewriting the Constitution. Venezuelans approved the ANC's draft in a national referendum on December 15, 1999. The political system described below is that defined by the 1999 Constitution.

The president is elected by a plurality vote with direct and universal suffrage. The term of office is 6 years, and subsequent to a national referendum to amend the constitution on February 15, 2009, there are no term limits for elected officials. The president appoints the vice president. He decides the size and composition of the cabinet and makes appointments to it, in consultation with the National Assembly. Legislation can be initiated by the executive branch, the legislative branch (either a committee of the National Assembly or three members of the latter), the judicial branch, the citizen branch (ombudsman, public prosecutor, and controller general) or a public petition signed by no fewer than 0.1% of registered voters. The president can ask the National Assembly to reconsider portions of laws he finds objectionable, but a simple majority of the Assembly can override these objections.

The National Assembly is unicameral, consisting solely of the Chamber of Deputies. Deputies serve 5-year terms, and may be re-elected indefinitely. These legislative agents are elected by a combination of party list and single member constituencies. When the Congress is not in session, a delegated committee acts on matters relating to the executive and in oversight functions. In December 2005 pro-government parties took all 167 seats in the National Assembly after opposition parties boycotted the election over concerns with electoral conditions. When President Chavez created the United Socialist Party of Venezuela (PSUV) in 2007, the “Podemos” party, previously affiliated with the government, refused to join the new umbrella party. Consequently, Podemos, with its 7 seats, is the only caucus in the National Assembly not affiliated with the government.

The Constitution designates three additional branches of the federal government--the judicial, citizen, and electoral branches.

The judicial branch is headed by the Supreme Tribunal of Justice (TSJ), which may meet either in specialized chambers (of which there are six) or in plenary session. The National Assembly appoints justices, who serve 12-year terms. Under the 1999 Constitution, the Supreme Tribunal of Justice is composed of 20 justices. The 1999 Constitution was amended in 2004, and the total number of justices was expanded by 12 to a total of 32. In December 2004, the National Assembly selected new judges to fill these new positions. The judicial branch also consists of lower courts, including district courts, municipal courts, and courts of first instance.

The citizens branch consists of three components--the attorney general ("fiscal general"), the "defender of the people" or ombudsman, and the comptroller general. The holders of these offices, in addition to fulfilling their specific functions, also act collectively as the "Republican Moral Council" (RMC). The RMC challenges actions they believe are illegal before the Supreme Tribunal of Justice, particularly those which violate the Constitution. The holders of the "citizen power" offices are selected for terms of 7 years by the National Assembly.

The "Electoral Power," otherwise known as the National Electoral Council (Consejo Nacional Electoral or CNE), is responsible for organizing elections at all levels. Its five members are also elected to 7-year terms by the National Assembly. In the event of a hung vote in the National Assembly, the Supreme Tribunal of Justice can be called on to appoint the members.

Political Turmoil

In July 2000, voters re-elected President Hugo Chavez of the Fifth Republic Movement (MVR). The election occurred under the new constitution in elections that the international community found to be generally free and fair. The MVR and the pro-Chavez Movimiento al Socialismo (MAS) parties won 92 seats in the 165-member legislature. In April 2002, the country experienced a temporary alteration of constitutional order which included the temporary departure of Chavez from the presidency. When an estimated 400,000 to 600,000 persons participated in a march in downtown Caracas to demand President Chavez's resignation, gunfire broke out, resulting in as many as 18 deaths and more than 100 injuries on both sides. Military officers took President Chavez into custody, and business leader Pedro Carmona swore himself in as interim President. Less than two days later, military troops loyal to Chavez returned him to power. A national reconciliation process, with participation by the Organization of American States (OAS), the UN Development Program, and the Carter Center, was unsuccessful in stopping further conflict. Opposition leaders called a national work stoppage on December 2, 2002. Strikers protested the government and called for the resignation of President Chavez. The oil sector joined other sectors of the economy and effectively shut down all economic activity for a month. The OAS Permanent Council passed Resolution 833 on December 16, 2002, calling for a "constitutional, democratic, peaceful, and electoral solution" to the crisis in Venezuela. The strike formally ended in February 2003 as political opponents of Chavez changed tactics, focusing on a recall referendum to revoke the mandate of the president.

 

Petroleum and Other Resources

Economic prospects remain mostly dependent on oil prices and the export of petroleum. The oil sector accounts for roughly 30% of GDP, 90% of export earnings, and more than half of the central government's ordinary revenues. Venezuela remains an important supplier of imported crude and refined petroleum products to the United States.

In the 1990s, the Government of Venezuela opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. By the late 1990s almost 60 foreign companies representing 14 different countries participated in one or more aspects of Venezuela's oil sector. On November 13, 2001, under an enabling law authorized by the National Assembly, President Chavez enacted a new Hydrocarbons Law, which came into effect in January 2002. The new law provided that all oil production and distribution activities would be the domain of the Venezuelan state, with the exception of the joint ventures targeting extra-heavy crude oil production. Private investors cannot own 50% or more of the capital stock in joint ventures involved in upstream activities. The new law also provided that private investors could own up to 100% of the capital stock in downstream ventures. A Gaseous Hydrocarbons law promulgated earlier by the Chávez government also allowed substantial participation by private investors with respect to gas production ventures.

During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA, the state-owned oil company, almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total workforce of 45,000, over 20,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike. Current levels of production remain a subject of debate, with considerable difference between the levels cited by the Venezuelan Government and those cited by private sector and international observers.

In early 2005, the government informed companies with operating service contracts for mature fields that they must migrate the contracts to joint ventures that conform to the 2001 Hydrocarbons Law. The government threatened to seize fields operating under the services contracts on December 31, 2005 if oil companies did not sign transition agreements to migrate their contracts. All but three companies ultimately signed joint venture agreements with the government. One company was bought out by its partner, while the fields operated by two other companies were ultimately taken over by the government. One of these disputes was handled by negotiation, while another company decided to take its case to international arbitration. In early 2007, President Chávez announced that the Venezuelan Government would take a majority government share in the remaining foreign investments in the oil sector, including the four heavy-oil "strategic associations" in the Orinoco belt. Several international oil companies agreed to migrate their interests to joint ventures with majority government ownership. Two U.S. companies decided to pull out of Venezuela and have filed for international arbitration.

In May 2009 the National Assembly passed an oil services sector law reserving to the state all primary hydrocarbons activity. This legislation laid the foundation for the expropriation of nearly 80 oil services companies, including three U.S. firms. The National Assembly in June 2009 passed legislation to require private-sector petrochemicals producers to enter joint ventures with Petroquímica de Venezuela (Pequiven, the state chemicals company). This will affect many foreign companies operating in Venezuela.

In February 2010, the government announced winning consortia in the Carabobo bid round, allowing two private sector consortia to negotiate the formation of mixed companies to produce crude and to develop heavy oil upgraders in the Carabobo region of the Orinoco belt. This was the first new bid round in the oil sector conducted since President Chavez came to power in 1999.

 

FOREIGN RELATIONS

President Chávez has promoted his "Bolivarian Revolution" as a model for other countries to follow. The policy calls for the establishment of a "multi-polar" world devoid of U.S. influence and for greater integration among developing countries. Venezuela is currently advocating regional integration through its PetroCaribe and PetroSur petroleum initiatives, the creation of a South American Community of Nations, and the establishment of the Bolivarian Alliance for the Americas (a political, economic, and social integration project proposed by President Chavez as an alternative to the Free Trade Area of the Americas). In April 2006, President Chávez announced he was withdrawing Venezuela from the Andean Community trade bloc. In July 2006, Venezuela officially joined the Southern Common Market, MERCOSUR. Before it can become a full member of MERCOSUR, Venezuela must conform to the trade bloc's economic regulations. Congressional approval by Paraguay is also still outstanding. The Venezuelan Government maintains very close relations with Cuba.

Since 2005, President Chávez has deepened relations with Iran, a U.S.-designated state sponsor of terrorism, by signing multiple economic and social accords and publicly supporting Iran's controversial nuclear program. President Chávez has also reached out to North Korea, Belarus, and Syria, the latter another state sponsor of terrorism. The Venezuelans have also embarked on a worldwide effort to increase their presence in embassies overseas in Africa and Asia and strengthen economic, political, and military ties with Russia and China. President Chávez has also launched a major arms purchase program for the Venezuelan Armed Forces, including the purchase of new and advanced weaponry. Since 2005, Venezuela has purchased over $4 billion in arms from Russia. These purchases include 100,000 AK-103 rifles from Russia; the construction of a rifle and ammunition complex; Russian Mi-35 HIND attack and Mi-26 transport helicopters; 24 Sukhoi Su-30 fighter jets; IGLAS-S man-portable air defense systems; and K-8 jet trainers from China. Other proposed purchases include an advanced integrated air defense system, over 90 T-72 tanks, more than 300 BMP-3 armored vehicles, Smerch mobile rocket launchers, and four KILO class diesel submarines, all from Russia.

Venezuela has longstanding border disputes with Colombia and Guyana, but seeks in general to resolve them peacefully. Bilateral commissions have been established by Venezuela and Colombia to address a range of pending issues, including resolution of the maritime boundary in the Gulf of Venezuela. Relations with Guyana are complicated by Venezuela's claim to roughly three-quarters of Guyana's territory. Since 1987, the two countries have held exchanges on the boundary under the "good offices" of the United Nations.

U.S.-VENEZUELAN RELATIONS

U.S.-Venezuelan relations have been tense in recent years, although both nations agreed at the April 2009 Summit of the Americas in Trinidad to seek a relationship based on mutual interest. President Chávez continues to define himself in opposition to the United States, using incendiary rhetoric to insult the U.S. Government and U.S. influence in Latin America. President Chavez ordered the expulsion of the U.S. Ambassador on September 11, 2008 in solidarity with the Bolivian Government's decision to expel the U.S. Ambassador in La Paz. The U.S. Government ordered the reciprocal expulsion of the Venezuelan Ambassador in Washington. Venezuela and the U.S. returned the ambassadors to their posts in June and July 2009, respectively, after an unusual agreement by each country to declare without effect the “persona non grata” designations. The United States continues to seek constructive engagement with the Venezuelan Government, focusing on areas where cooperation is in both nations’ interest. Examples of such overlapping interests include cooperation in confronting narcotics trafficking and terrorism, as well as the commercial relationship.

U.S.-Venezuelan commercial ties are deep. The United States is Venezuela's most important trading partner, with U.S. goods accounting for about 25% of imports and approximately 60% of Venezuelan exports going to the United States. In turn, Venezuela is the United States' third-largest export market in Latin America, purchasing U.S. machinery, transportation equipment, agricultural commodities, and auto parts. Venezuela is one of the top four suppliers of foreign oil to the United States. The Department of State is committed to promoting the interests of U.S. companies in overseas markets. For contact information and a list of government publications, please go to the end of this document.

Venezuela is a minor source country for opium poppy and coca but a major transit country for cocaine and heroin. Money laundering and judicial corruption are major concerns. In 2004 and early 2005, counternarcotics cooperation between the U.S. and Venezuela deteriorated significantly. In March 2005, the Venezuelan National Guard removed its highly experienced members from the U.S.-supported Prosecutor's Drug Task Force. In August 2005, the Government of Venezuela accused the U.S. Drug Enforcement Administration (DEA) of espionage and terminated cooperation with the DEA pending negotiation of a new cooperation agreement, which had gone unsigned as of October 2006. The United States has concluded that Venezuela demonstrably failed to meet its international counternarcotics obligations every year since 2005.

In June 2009, Venezuela was listed for the second year as a Tier 2 Watchlist status in the State Department's Trafficking in Persons Report. Tier 2 Watchlist status indicates that a country does not fully comply with the minimum standards for the elimination of trafficking; however, it is making significant efforts to do so.

Approximately 23,000 U.S. citizens living in Venezuela have registered with the U.S. Embassy, an estimated three-quarters of them residing in the Caracas area. An estimated 12,000 U.S. tourists visit Venezuela annually. About 500 U.S. companies are represented in the country.

 

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