There are two scenarios for Venezuela's future after President Hugo Chavez's victory Sunday in a constitutional referendum that will allow him to stay in power indefinitely: One is bad; the other is worse.
Both scenarios, as you may have guessed, depend on oil prices. Oil accounts for nearly 95 percent of Venezuela's export income. And oil prices — which rose from $9 a barrel when Chavez took office in 1999 to a record $156 a barrel last year — have been the key to Chavez's staying power.
But with oil prices plummeting as a result of the world recession, the petro-dollar party is over. Venezuela's narcissist-Leninist leader won't be able to continue giving away cash subsidies at home or happily handing out tens of billions of dollars in self-promotional aid packages abroad.
Inflation is already at 31 percent, by far the highest in Latin America, and food prices rose by 50 percent last year. Venezuela's economy, which grew by 4.2 percent in 2008, is projected to drop by 3 percent in 2009 and by 5.4 percent in 2010, according to the Economist Intelligence Unit.
Chavez, who postponed cuts in government spending in his effort to win the referendum, will have to drastically cut public subsidies and risk growing public discontent, or he may choose to blame the "oligarchy," or the U.S. "empire" for an upcoming economic collapse and radicalize his regime.
Scenario No. 1: Oil prices return to about $70 a barrel and Venezuela continues to muddle through as an authoritarian populist country.
Under this scenario, Chavez manages to ride out the current economic crisis without massive cuts in government spending. If oil prices start inching up late this year or early in 2010, he will be able to use whatever is left of his cushion of liquid reserves to buy some time and keep the government functioning until oil reaches about $70 a barrel, which most economists say is the threshold Venezuela needs to maintain its current spending levels.
If that happens, Chavez would have a chance of winning next year's congressional elections, despite the fact that the opposition won more than 45 percent of the vote last Sunday and has been steadily gaining ground in recent years.
Under this scenario, either Chavez or the opposition could win the 2012 presidential elections. A Chavez win would allow him to carry out his stated goal to stay in power until at least 2019, even if under much more trying economic times.
Scenario No. 2: Venezuela's oil continues at its current low levels of $35 a barrel, and — amid a worsening economic crisis — Chavez tightens his grip on power to prevent an opposition victory. Venezuela becomes a full-blown dictatorship and — absent the possibility of a democratic electoral outcome — the country heads toward violence.
With continued low oil prices, Chavez won't be able to maintain his social programs, nor will he have access to foreign credit. He will have little choice but to tighten exchange controls and devalue the currency.
"We will probably see a mini devaluation, somewhere between 25 percent and 35 percent by the end of the year," says Patrick Esteruelas, a Latin America analyst with the New York-based Eurasia Group.
The devaluation will mean that Venezuela will be printing more money to pay for its government spending, which will lead to even higher inflation. And with a devalued currency, imports will become costlier and there will be even greater food shortages since Venezuela buys most of what it consumes from abroad.
All of this will lead to greater public discontent, putting the opposition in a better position to win the 2010 and 2012 elections. Chavez may use the pretext of an alleged plot against Venezuela or create a conflict with neighboring Colombia to rally support at home, close down more television networks and win elections by imposing new Cuban-styled mechanisms of political control over the population.
But the estimated half of Venezuela's population that opposes Chavez, including the country's highly politicized student movements, won't stand still. Venezuela's political divide will turn increasingly violent.
My opinion: I tend to believe that we will see the first scenario. Venezuela's foreign reserves will buy Chavez some time and oil prices are likely to inch up next year because of expectations of a world economic rebound, a terrorist attack or a new explosion of Middle Eastern violence. But no matter which of the two scenarios takes place, things are going to get worse in Venezuela over the next few years.
ABOUT THE WRITER
Andres Oppenheimer is a Latin America correspondent for the Miami Herald, 1 Herald Plaza, Miami, Fla. 33132; e-mail: aoppenheimer@miamiherald.com.