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Sunday, 15 December, 2002, 11:57 GMT
Venezuela's oil troubles
Caracas's gritty San Augustin Norte neighbourhood
Chavez has tried to help Venezuela's poor

The residents of Caracas's gritty San Augustin Norte neighbourhood do not have much: improvised brick and concrete homes, land they often lack title to, and drinking water only two days a week.

But the people do have a view - of the twin concrete-and-glass Parque Central skyscrapers towering more than 50 stories high right across the freeway slashing through central Caracas.

Caracas's gritty San Augustin Norte neighbourhood
Slums overlook the homes of the elite
It is from these towers, Latin America's tallest buildings built with petrodollars during the booming 1970s, that the nation's $40bn petroleum industry is regulated.

The ongoing stand-off between the government of Hugo Chavez and the opposition of businesses, media and much of the middle class has pushed Venezuela's petroleum industry into the international spotlight.

The management of the state-owned company Petroleum of Venezuela (PDVSA) have shut down the company's operations in an attempt to force Chavez to resign or agree to early elections.

The shutdown has halted exports from the world's fifth-largest oil petroleum exporting nation and is progressively drying up supplies at gas stations across the country.

Oil wealth

It is Venezuela's petroleum industry which gives it a global importance - it helps power the economies of the US and Europe - and which makes this nation's drama of international concern.

Romelia Mata
Romelia Mata blames the rich
But for the poor of San Augustin, the gleaming Parque Central towers are a constant reminder that despite Venezuelan oil wealth, the benefits have not crossed the freeway to San Augustin's slums.

"The rich want everything for themselves, nothing for the poor," says Romelia Mata, who earns about $75 per month cleaning a motorcycle shop.

Ms Mata is more fortunate than many of her San Augustin neighbours, half of whom she estimates are unemployed.

Wealth paradox

Across Venezuela, the paradox is the same.

Oil provides about 80% of its export earnings, contributes half of the gross domestic product and fuelled a half-century of economic growth during which Venezuela boasted the world's fastest-growing economy.

But still two-thirds of Venezuelans still live in poverty.

It was anger at that injustice which in 1998 swept Mr Chavez and his 'Bolivarian revolution for the poor' into power with almost 60% of the vote.

Since then, however, despite generally high petroleum prices, Venezuela's poverty rates have only risen, and Chavez's popularity has declined.

What went wrong?

Analysts say that in many ways the petroleum industry's great bounty has actually undermined the rest of the economy.

During the 1920s and 1930s, when oil was taking off, millions of Venezuelans abandoned the countryside to work in petroleum and its related industries.

Some found success, but many others did not, and today Venezuela's cities are pocked with poor neighbourhoods like San Augustin and corridors of shacks huddled along the capital's dry riverbeds.

The abandonment of the countryside also decimated the agricultural industry, so that today this large and highly fertile nation imports some 80% of its food.

The petroleum boom also pushed up wages all across Venezuela's economy, making other sectors, such as manufacturing and tourism, uncompetitive.

Poor suffer

Tying Venezuela to a single commodity made the nation vulnerable to repeated 'shocks' as petroleum prices leapt or fell, pushing Venezuela's currency up or down.

"The ones who suffer most are the poor," says Caracas economics professor Francisco Vivancos, "Because they don't have savings in the exterior."

Not until 1999 did Venezuela create a macroeconomic stabilisation fund, but since then millions of its dollars have been misappropriated or embezzled by the elites.

Finally, because much of the nation's petroleum income comes in the form of taxes, it passes through corrupt elements of the government, so a great deal is lost rather than benefiting the poor or nurturing alternative industries.

Social programme

Mr Vivancos says that in order to diversify its economy Venezuela must slash government and invest in "human capital" by improving education.

"In the end, that's the only way to rescue the population from poverty," he said.

Poverty has not been petroleum's only result.

Along the way, it has also scarred and stained Venezuela's great biodiversity.

Western Venezuela's Lake Maracaibo, whose bottom is perforated by thousands of oil wells, is not only South America's largest lake, it is also considered the continent's most polluted.

Economic progress

Of course, petroleum has also provided Venezuela with many benefits, such as roads, universities and Caracas's mass transit system.

But it has not brought it the sort of balanced and stable economy which sustains long term growth.

Jose Toro Hardy, a member of PDVSA's board directors from 1994 to 1998, says the ease of the oil wealth has sapped Venezuela's initiative.

"The nation has wanted to earn more by working less," he said.

Venezuela still has petroleum reserves estimated to last another 50 years.

But, sooner or later, the petroleum will either run out or the world will switch to a less environmentally-damaging energy source.

Caracas petroleum analyst Alberto Quiros recalls that when Spain conquered Latin America centuries ago it quickly became Europe's richest nation, but never diversified its economy and sank quickly into poverty as soon as the boon ended.

"I hope that doesn't happen to us," Quiros says.

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See also:

13 Dec 02 | Americas
12 Dec 02 | Americas
11 Dec 02 | Americas
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