ShareThisVenezuelan President Hugo Chavez may have been the only leader of an oil-producing power in the world who believed -- or at least claimed to believe -- that his country was immune from the meteoric drop in the price of crude.
For weeks, he vowed that his brand of 21st-century socialism would triumph -- even if the price of oil plummeted to zero.
But now, even El Presidente is facing a hard truth.
"Oil prices are very low," he acknowledged in a speech at a recent military parade in Caracas. "For Venezuela, this is tough and difficult. But even so, I will stick to what I have said: We are not going to cut spending on the missions ... food, health, education and housing."
His dramatic admission regarding the price of crude illustrates the impact of its collapse on oil-dependent governments around the world. While Russia, Canada and others are suffering, Venezuela may fare the worst.
More than any other leader, Chavez has staked his success, domestically and internationally, on the commodity boom. He was in the vanguard of a surge in resource nationalism that led producing countries to drive tougher bargains with international oil firms.
Or, in the case of Chavez, make them completely unwelcome.
Now, Chavez is backtracking as his government invites foreign oil companies to participate in the next stage of development in the Orinoco field. Global oil companies will look to drive a hard bargain, eager to force Chavez into leading the reversal of the global trend that limited their access to international oil reserves.
Even the president's most ardent supporters concede that the global recession will also lay bare the structural problems in Venezuela's boom-and-bust economy: A failure to diversify, a lack of productivity, an over-reliance on imports and an overvalued currency.
"Venezuela is protected by its foreign reserves, but only for so long. I am worried about 2010," said Nelson Merendes, who served as finance minister in the Chavez government from 2000 to 2007. "We are worried -- but we are not at death's door."
Last month, Chavez won the right to stand for president indefinitely. The 54-year-old former paratrooper called his Feb. 15 victory a chance to deepen the Bolivarian revolution, a political movement focused on nationalizing the economy and spreading the country's oil largesse to the poor, when he runs for re-election in 2012.
But there's no escaping the fact that the world's fifth-largest oil producer will face a dramatic loss in revenue this year. The price of oil has dropped to about $40 a barrel from a high of $142 in July 2008. Fully 94 percent of Venezuelan's exports are oil -- up from 64 percent in 1998 -- and oil money comprises half the government's budget.
After five years of sustained growth, the economy is expected to contract by 2 percent this year, according to the Economist Intelligence Unit.
So how exactly will Chavez's political franchise survive without an oil bonanza? How will his government pay for the pasta and sardines on the shelves of 10,000 subsidized supermarkets known as Mercal, and staff the 6,571 medical clinics run by Cuban medics in exchange for discounted oil for their homeland?
The 2009 budget, passed in December, optimistically counts on $60-a-barrel oil, and economic growth of 6 percent. Last year, the government received $90 billion in revenue from oil exports, a figure that is expected to decrease by two-thirds in 2009.
That won't leave Chavez with enough money to cover an import bill that last year reached $55 billion. Economists say the price of oil must reach about $70 a barrel for Venezuela to maintain its current spending levels.
The Venezuelan government can cover the shortfall in oil revenue by borrowing from its $42 billion foreign reserve fund. However, those funds will run out by the year's end.
"Then there will be a spectacular crisis," predicts Jose Toro, an economist and former board member of Petroleos de Venezuela SA, the nationalized oil company.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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