The Triumph of Democracy
Historians invariably point to Betancourt's inauguration as the pivotal point in four centuries of Venezuelan history. Not since its discovery by Spanish explorers in the late fifteenth century had an event so clearly marked a new era for the country. After nearly a century and a half as perhaps the most extreme example of Latin America's postindependence affliction of caudillismo and military rule, Venezuela's political life after 1959 was defined by uninterrupted civilian constitutional rule.
This stark break with the past has been attributed most often to the government's petroleum-based wealth, which gave it the material resources to win a vast portion of the population over to the democratic consensus, and to the spirit of cooperation among the nation's various political entities (commonly known as the "Spirit of the 23rd of January," after the date of Pérez's fall from power) as embodied in the Pact of Punto Fijo. Betancourt and his AD colleagues had apparently learned from the disastrous consequences of their strident posture during their previous stint at governing. They now reversed themselves by granting concessions to a broad range of political forces that included many of their most bitter enemies during the trienio. They guaranteed, for example, the continuation of obligatory military service; improved salaries, housing, and equipment for the military; and, most important, amnesty from prosecution for crimes committed during the dictatorship. The Roman Catholic Church, whose active opposition to Pérez had impressed many doctrinally anticlerical AD militants, somewhat enhanced its political image and expanded its influence within the government.
In another pact written up during the weeks before the 1958 elections, known as the "Declaration of Principles and Governing Program," AD, COPEI, and the URD agreed on a broad range of matters with respect to the economy. In what amounted to guarantees to the foreign and local business communities, the parties agreed to respect the principles of capital accumulation and the sanctity of private property. Local industry, furthermore, was guaranteed government measures to protect it from foreign competition as well as subsidies through the state- run Venezuelan Development Corporation (Corporación Venezolana de Fomento--CVF). With respect to agrarian properties, any expropriation or transfer of title would provide for compensation to the original owner.
Betancourt made other conciliatory moves as well. A new labor code granted unprecedented government guarantees of the right to association and collective bargaining. Vastly enlarged state subsidies benefited the poor in such areas as food, housing, and health care. The objective was to institutionalize a "prolonged political truce" by including as many citizens as possible within a popular consensus in favor of the civilian, democratic project. The "Spirit of the 23rd of January" informed the 1961 constitution, which guaranteed a wide range of civil liberties and created a weak bicameral legislature, where partisan political conflict could be aired but would cause a minimum of damage. The president was given considerable power, although he was allowed to run for reelection only after sitting out two five-year terms.
The major group excluded from the political pacts of 1958 was the extreme left. This exclusion was the result, initially, of the doctrinal anticommunism of AD--and of Betancourt in particular. The exclusion was subsequently perpetuated by the triumph of the Cuban Revolution in 1959 and the revolution's precipitous radicalization during the early 1960s. The Cuban Revolution had a profound impact on the Venezuelan left, particularly among student groups, who saw it as a model for a successful revolutionary effort in Venezuela. In November 1960, the URD dropped out of the governing coalition with AD in protest over Betancourt's firm stance against Cuban leader Fidel Castro Ruz. AD also suffered the loss of most of its student wing, which in April of that year split from the party to form the Movement of the Revolutionary Left (Movimiento de la Izquierda Revolucionaria--MIR), supposedly to protest delays in the implementation of the government's agrarian reform program.
In 1961 these groups, together with the PCV, consolidated their advocacy of antigovernment guerrilla warfare. The Betancourt government supported Cuba's expulsion from the Organization of American States (OAS), then broke diplomatic relations with the Castro government in December. In May and June of the following year, military officers sympathetic to the left instigated two bloody uprisings, first at Carúpano on the Península de Paria, then at Puerto Cabello. These provoked Betancourt into legally proscribing the PCV and the MIR, which promptly went underground and formed the Armed Forces of National Liberation (Fuerzas Armadas de Liberación Nacional--FALN). The FALN engaged in rural and urban guerrilla activities throughout the remainder of the 1960s. The activity reached its height in 1962 and 1963, when the FALN sabotaged oil pipelines and bombed a Sears Roebuck warehouse and the United States Embassy in Caracas.
The FALN failed, however, to attract adherents among the poor, whether rural campesinos or the residents of the makeshift shacks, known as ranchos, that made up Caracas's mushrooming slum areas. The guerrillas also proved unable to achieve their secondary goal of provoking a coup d'état that would lead to a repressive military regime and, hence, increase popular support for the insurgents. As political scientist Daniel H. Levine points out, the FALN's effect proved to be quite the contrary of what it intended: it actually consolidated the democratic regime by making AD look--to its many former enemies on the right--like the better of two alternatives. At the same time, the insurgency provided a vital military mission to the armed forces, one that removed them still further from direct participation in politics. Ultimately, the FALN's efforts to disrupt the December 1963 elections also proved futile. In the midst of this guerrilla campaign, the government arrested all PCV and MIR congressmen in September, and in November military forces discovered a three-ton cache of small arms--with clear links back to the Castro regime--on a deserted stretch of beach.
Castro was not Betancourt's only enemy in the Caribbean, however. Rafael Leónidas Trujillo Molina, the dictatorial ruler of the Dominican Republic, was implicated in a number of antigovernment conspiracies uncovered within the Venezuelan military, as well as in the bombing of Betancourt's car in June 1960, in which a military aide was killed and the president badly burned. The Venezuelan president's strong-willed antipathy for nondemocratic rule was reflected in the so-called Betancourt Doctrine, which denied Venezuelan diplomatic recognition to any regime, right or left, that came to power by military force.
Highly unfavorable circumstances in the external sector of the economy handicapped the Betancourt administration. Having inherited an empty treasury and enormous unpaid foreign debts from the spendthrift Pérez, Betancourt nevertheless managed to return the state to fiscal solvency despite the persistence of rock-bottom petroleum prices throughout his presidency. He also managed to continue the effort, begun during the 1930s by President López, of "sowing the oil" by initiating a variety of reform programs, the most important of which was agrarian reform. Aimed not at addressing social grievances but rather at reversing Venezuela's protracted decline in agricultural production, AD's land reform distributed only unproductive private properties and public lands. Landowners who had their properties confiscated received generous compensation. By the end of the 1960s, an estimated 166,000 heads of household had received provisional titles to their new properties.
During 1960 two institutions were founded that made important contributions toward the development of a national petroleum policy: the Venezuelan Petroleum Corporation (Corporación Venezolana de Petróleos--CVP), conceived to oversee the national petroleum industry, and the Organization of the Petroleum Exporting Countries (OPEC), the international oil cartel that Venezuela established in partnership with Kuwait, Saudi Arabia, Iraq, and Iran. Both organizations were the creations of Juan Pablo Pérez Alfonso, who, for the second time, served as Betancourt's minister of energy. During the trienio, Pérez Alfonso had earned the wrath of the foreign oil firms with his proposition that the state should gradually assume control of the petroleum industry; this idea now once again became government policy.
Perhaps the greatest of all Betancourt's accomplishments, however, were the successful 1963 elections. Despite myriad threats to disrupt the process, nearly 90 percent of the electorate participated on December 1 in what was probably the most honest election in Venezuela to that date. AD standard- bearer Raúl Leoni proved victorious, gaining 33 percent of the total vote in a field of seven presidential candidates. On March 11, 1964, for the first time in the nation's history, the presidential sash passed from one constitutionally elected chief executive to another. It was a day of immense pride for the people of Venezuela.
Leoni, a hard-working but less colorful figure than Betancourt, differed little from his reformist predecessor from an ideological standpoint. Nevertheless, unlike Betancourt, Leoni proved unable to agree to COPEI's conditions for forming a governing coalition and instead made an alliance with the URD and the National Democratic Front (Frente Nacional Democrática--FND), a probusiness party created around Arturo Uslar Pietri, a noted writer and public affairs activist.
Subversive activities quieted considerably during the Leoni administration. By no means were they ended, however. Rumors of military plots were rife throughout the five-year term; the most dangerous military rebellion, an attempted coup d'état in October 1966, was swiftly put down and its leaders court-martialed. The threat from the revolutionary left also persisted, leading Leoni in December 1966 to order an army search of Caracas's Central University for revolutionaries. By 1965, however, the PCV had begun to harbor doubts about violence as a road to power, and over the course of the following two years, it gradually abandoned the revolutionary path. Splinter groups with Cuban ties persisted in their violent activities, however, and in May 1967, a small landing party headed by a Cuban army officer was captured at Machurucuto in the state of Miranda. This would prove to be the pinnacle of Castro's crusade to export his revolution to Venezuela. Insurgent activity subsequently subsided, and bilateral relations with Cuba eventually improved.
Economic growth averaged a healthy 5.5 percent annually during the Leoni years, aided by a recovery in petroleum prices and the relative political tranquility as the AD program attained legitimacy. Leoni kept the Betancourt reform programs on course and also introduced a number of impressive infrastructure projects designed to open up the nation's interior to agricultural and industrial development. Regional integration efforts advanced, albeit slowly, although Venezuela remained outside the newly created Andean Common Market ( Ancom) in response to objections from the local business community, which feared competition from lower-priced goods manufactured in neighboring countries.
The governing party split in 1967 over the choice of the party's presidential candidate for the 1968 elections. Stemming in part from a long-simmering rivalry between former president Betancourt and AD secretary general Jesús Angel Paz Galarraga, a highly damaging split led Paz to launch the People's Electoral Movement (Movimiento Electoral del Pueblo--MEP). The MEP tendered Luis B. Prieto as its candidate, while Gonzalo Barrios headed the AD ticket. The URD joined forces with the FND and the party of former presidential candidate Larrazábal to promote the candidacy of Miguel Angel Burelli Rivas under the banner of a coalition dubbed the Victorious Front. COPEI once again ran Caldera, who proved victorious in this fourth attempt to capture the presidency. His victory resulted both from the split in AD and from COPEI's liberalization of its image away from that of a strictly conservative Roman Catholic party. All four candidates finished strongly at the end of a hard-fought campaign, however, and Caldera eked out a victory over Barrios by a margin of merely 31,000 votes. The passing of the presidential sash from Leoni to AD's principal opposition leader in March 1969 marked yet another first in Venezuela's rapidly maturing democracy.
President Caldera never made an earnest effort to form a governing coalition. Throughout his five-year term, his cabinet consisted exclusively of copeyanos (COPEI party members) and independents. In Congress, however, the governing party was forced to form a working alliance with AD in 1970 because mounting student demonstrations and growing partisan intransigence made unilateral rule impossible.
The major concerns of Caldera's government were not unlike those of his two predecessors: agrarian reform and increased farm production, the improvement of educational and social welfare benefits, the expansion and diversification of industrial development, and progress toward local control of the petroleum industry. With respect to the latter, the government's tax rate on the petroleum companies rose to 70 percent by 1971. In the same year, the Hydrocarbons Reversion Law--stipulating that all of the oil companies' Venezuelan assets would revert to the state when their concessions expired--went into effect.
The key policy distinction between Caldera's government and those of his AD predecessors lay in the area of foreign policy. President Caldera rejected the Betancourt Doctrine, which he considered restrictive and divisive, and which he thought had served to isolate Venezuela in the world. Bilateral relations were soon restored with the Soviet Union and the socialist nations of Eastern Europe, as well as with a number of South American nations that had fallen under military rule. By dividing Latin American nations from one another, the Betancourt Doctrine, Caldera believed, had served to promote United States hegemony in the region. Seeking points of unity instead, Caldera established "pluralistic solidarity" as the guiding principle of Venezuelan foreign policy. Among its positive results was Venezuela's entrance into Ancom upon signing the 1973 Consensus of Lima, which assuaged the fears of the business community by allowing Venezuela to attach a number of special conditions to its membership.
On the one hand, by joining Ancom, Venezuela emphasized its Andean identity. On the other hand, the striking expansion of its investment in the Caribbean Development Bank emphasized the nation's Caribbean character. Caldera thus began to provide oil- based financial aid to the nations of Central America and the Caribbean, an effort that would be greatly expanded in subsequent years.
Although the internal security situation had improved, Caldera adopted a policy of "pacification" toward the remaining armed opposition. The pacification program legalized the PCV and other leftist parties and granted amnesty to revolutionary activists. The government credited the program for the dramatic decline in guerrilla activity. Its opponents, however, pointed out that the most conspicuous decrease in Venezuela's revolutionary violence came under Leoni, when Cuba and the Soviet Union changed their policies in the wake of the 1967 death of Ernesto "Che" Guevara in Bolivia and the 1968 Soviet invasion of Czechoslovakia.
The December 1973 election was a truly pluralistic affair. The twelve presidential candidates ranged from three aspirants of the parties on the left to an even larger number of self-declared representatives of former president Pérez on the right. The MEP, which had moved steadily leftward since 1968, allied itself with the PCV and nominated Paz under the banner of Popular Unity (Unidad Popular), modeled after the Chilean left-wing coalition of the same name that had elected Salvador Allende Gossens in 1970. The URD initially joined the coalition, but the aging Jóvito Villalba later withdrew his party to launch his own candidacy. The other candidate on the left was José Vicente Rangel of the Movement Toward Socialism (Movimiento al Socialismo--MAS), a party that had been founded in 1971 by a group of PCV dissidents with liberal, "Eurocommunist" notions of a modern, election-oriented party. Unlike the Moscow-line PCV, the MAS had little bond to the Soviet Union.
Although the 1973 election was notable for the ideological pluralism represented in the competing political parties, its most important distinction was the primacy achieved by the two principal parties, AD and COPEI. In contrast to 1968, AD converged around the figure of Betancourt's long-time protégé and minister of interior, Carlos Andrés Pérez, thus passing party leadership to its second generation. Campaigning deep into the rural Venezuelan heartland as well as in the ranchos of all major cities, Pérez managed to recapture much of the populist appeal acquired by Betancourt thirty years previously. The campaign of his opponent, Lorenzo Fernández (also a former minister of interior) was, by comparison, a low-key affair.
On election day an astounding 97 percent of the registered voters went to the polls. Pérez, with 48.8 percent of the valid vote, prevailed against Fernández's 36.7 percent. Between them, then, AD and COPEI captured nearly 86 percent of the valid presidential vote; the two parties also garnered 43 of the 49 Senate seats and 166 of 200 seats in the Chamber of Deputies. AD attained absolute majorities in both congressional houses as well as in 157 of the nation's 181 municipal councils. The showing of leftist parties, in contrast, was unimpressive: the Popular Unity coalition gained 5.1 percent; MAS, 4.2 percent; and the URD, a mere 3.1 percent. "Polarization" was the term used locally to describe the apparent transition of Venezuela's electoral contests into two-party affairs. It was yet another promising sign in the evolution of a stable system of democracy.
Venezuela had still another reason to be euphoric at the dawn of 1974. The October 1973 Arab-Israeli War had triggered a quadrupling of crude oil prices in a period of only two months. When Pérez assumed the presidency in February 1974, he was immediately faced with the seemingly enviable task of managing a windfall of unprecedented proportions. To combat the inflationary pressures that would result from the sudden addition of some US$6 billion in annual government revenues, Pérez set up the Venezuelan Investment Fund (Fondo de Inversiones de Venezuela-- FIV), with the objective of exporting 35 percent of this unexpected income as loans to Caribbean, Central American, and Andean neighbors. The greatest portion of this aid money went to the oil-importing nations of Central America in the form of long- term loans to pay for half of their oil-import bills. Venezuela also loaned out its "excess capital" through various multilateral lending institutions, including the Inter-American Development Bank (IDB).
The FIV loan program engendered considerable international goodwill on behalf of Venezuela, particularly among the recipient countries. Building on that prestige, Pérez and Mexican president Luis Echeverría Alvarez (1970-76) founded the Latin American Economic System (Sistema Económico Latinoamericano--SELA). SELA, with headquarters in Caracas, had twenty-three Latin American nations as its initial members in 1975. It was formed to promote Latin American cooperation in international economic matters such as commodity prices, scientific and technological exchange, and multinational enterprises and development projects. SELA, it was hoped, would help create the building blocks of a "new international economic order," in which the developing nations of the southern hemisphere would challenge the economic hegemony of the developed nations of the north.
Pérez's aggressive stance on behalf of the Third World helped to cool Venezuela's traditionally warm relations with the United States. Other contributing factors to this change included Venezuela's displeasure with both the revelations of extensive covert intervention by the United States against the Allende government in Chile and the reluctance of the United States to begin negotiations with Panama over future control of the Panama Canal. The major irritant, however, was OPEC's petroleum policy, marked by OPEC's 1973 price increases, and the embargo on oil shipments to the United States instigated by the Arab members of OPEC during the October War. Despite the fact that Venezuela had increased its oil shipments at that time in order to meet United States needs, the United States retaliated against the embargo by excluding Venezuela, along with the other OPEC-member nations, from the 1974 Trade Act, which created the Generalized System of Trade Preferences to lower tariffs on designated imports from developing nations. Proud of never having denied the nation's oil to the United States, even during periods of war and political tensions, Venezuelans took offense at what they saw as unwarranted punitive action by the United States.
At home, President Pérez put aside his promised intention to "manage abundance with the mentality of scarcity," and embarked on a spending spree designed to distribute Venezuela's oil wealth among the citizenry. Price controls that subsidized the public consumption of food and other commodities were introduced. Government-authorized wage increases, combined with foreign exchange controls that subsidized imports, led to periodic buying binges of Japanese stereos and televisions, German automobiles and cameras, and clothing and processed foods from the United States. Per capita consumption of Scotch whiskey soared to a level among the world's highest. Government subsidies assumed a variety of other forms as well: in 1974, US$350 million in debts owed to state agencies by the Venezuelan farming community were simply cancelled.
The Pérez administration initiated various other programs to spur employment. The 1974 Law of Unjustified Dismissals made it very difficult for employers to fire workers and mandated ample severance payments to those who did lose their jobs. Public employment doubled in five years, reaching 750,000 by 1978. Although unemployment levels thus dropped precipitously, Venezuelans' traditional disdain for hard work increased, leaving many necessary jobs either unfilled or filled by a growing number of indocumentadosas (undocumented or illegal aliens) from Colombia and Brazil.
Although these subsidy and employment programs theoretically sought to improve the lot of the poor, in fact, the actual outcome was that a significant portion of the population continued to live in a state of misery. Income distribution was less equitable in 1976 than it had been in 1960, and one study found that fully 40 percent of the population nationwide were ill fed and undernourished. This contrast of widespread poverty amidst urban development and the conspicuous consumption of the middle and upper classes was particularly damaging to Pérez, who had been elected with a public image as a "friend of the people." AD's failure to address adequately the needs of the poor would plague the party during the 1978 electoral contest.
The government continued, as it had been doing for nearly four decades, to put a large portion of its petroleum revenues into building an industrial base, with the objective of generating future income after the nation's oil reserves had been depleted. With massive amounts of money to spend, emphasis was now placed on large-scale, high-technology infrastructure and industrial development projects. The Pérez administration's Fifth National Plan, conceived during the mid-1970s and scheduled to become operative in 1977, accordingly called for some US$52.5 billion in investments over a five-year period.
In an effort to minimize the bureaucratic entanglements entailed by such a major increase in the fiscal responsibilities of the central government, funding was instead vested in autonomous and semi-autonomous entities. The four years following the 1973-74 oil boom saw the creation of no less than 163 such entities, including textile and lumber companies, a hydroelectric consortium, shipbuilding firms, and a national steamship company and airline. By 1978 the budget outlay for state-owned enterprises and decentralized agencies was 50 percent higher than the federal budget.
The centerpiece of this state-directed program of industrial development was the massive industrial complex at Ciudad Guayana. Located near major deposits of iron and other raw materials in the vast Guiana highlands, the complex was placed under the supervision of the Venezuelan Corporation of Guayana (Corporación Venezolana de Guayana--CVG). Ciudad Guayana was developed during the early 1960s as an effort to decentralize industrial development away from Caracas. It attracted considerable private as well as public investment--most notably the Orinoco Steelworks (Siderúrgica del Orinoco--Sidor), a CVG subsidiary--and grew quickly; by 1979 its population reached 300,000. During the Pérez administration, Sidor benefited from massive new investments, including a US$4 billion project designed to increase its refining capacity five-fold. The government erected modern, large-scale aluminum and bauxite refineries and massive hydroelectric projects with a vision of converting the Orinoco Basin into a Venezuelan Rhineland.
In January 1975, the government cancelled the iron ore concessions of subsidiaries of two United States-owned firms (United States Steel Corporation and Bethlehem Steel) operating in the Guayana highlands. It was not an unexpected move, as local ownership of raw-material extraction had been frequently addressed during the 1973 presidential campaign. The nationalization process took place smoothly: the two companies accepted US$101 million in compensation and agreed to sign one- year management contracts to provide continuity in the operation of the mines during the transition.
Congressional approval, the following August, of a bill nationalizing the petroleum industry had also been anticipated. The fourteen foreign oil companies involved did not object vigorously to the move; the Venezuelan government had granted them no new concessions since 1960, and their share of the profits from the petroleum they extracted had dropped to 30 percent. The US$1 billion they received, though only a fraction of the replacement cost of the assets they surrendered (including 12 oil refineries with an aggregate capacity of 1.5 million barrels of oil per day, along with some 12,500 oil wells), was generally believed to be as fair and generous a compensation as possible under the circumstances. The fourteen foreign firms were consolidated into four autonomous entities, modeled after the four largest of the foreign enterprises, and placed under the administrative supervision of the Venezuelan Petroleum Corporation (Petróleos de Venezuela, S.A.--PDVSA), a holding company fashioned out of the CVP. General Rafael Alfonso Ravard, who had managed the CVG in a highly efficient, technocratic manner quite atypical of most government ventures, was chosen to head PDVSA.
The Pérez administration had devised its grandiose Fifth National Plan under the assumption that rising oil prices would boost government revenue throughout the 1970s. Instead, Venezuela's oil income leveled off in 1976, then began to decline in 1978. Foreign commercial banks, awash with petrodollars deposited by other OPEC nations, provided loans to make up the shortfall so that Venezuela's development program could proceed on schedule. On the one hand, the banks saw oil-rich Venezuela as an excellent credit risk, while on the other hand, the autonomy of Venezuela's state firms allowed them to borrow excessively, independent of central government accounting. To expedite their receipt of this external financing, the autonomous entities opted for mainly short-term loans, which carried higher rates of interest. As a result, by 1978 the public-sector foreign debt had grown to nearly US$12 billion, a five-fold increase in only four years. An estimated 70 to 80 percent of this new debt had been contracted by the decentralized public administration.
Between the vast increase in oil revenues before 1976 and the immense foreign debt incurred by the government, the Pérez administration spent more money (in absolute terms) in 5 years than had all other governments during the previous 143 years combined. Perhaps inevitably, a lot of money was squandered in mismanagement and corruption. Despite expansive overseas programs to train managers of the new public entities, the lack of competent personnel to execute the government's many sophisticated endeavors became painfully evident. The delays and myriad cost overruns that ensued formed the backdrop of frequent malfeasance by public officials. Overpayment of contractors, with kickbacks to the contracting officers, was perhaps the most rampant form of graft. Featherbedding and the padding of payrolls with nonworking or nonexistent employees also became common practices.
By the time of the December 1978 elections, these issues had brought serious doubts to the voters as to the competence and the probity of the AD government. AD's candidate Luis Piñerua Ordaz lost to COPEI's Luis Herrera Campins by a little over 3 percentage points. The loss had less to do with the program presented by either candidate than with the public's rejection of the free-spending, populist style of President Pérez. Otherwise, the 1978 campaign was most notable for the vast sums spent by the two major candidates on North American media consultants. More than any previous electoral contest, this campaign was conducted on television, increasing the relative importance of image over substance. The two major parties captured almost 90 percent of the total vote; a divided left shared 8.5 percent of the total among four candidates. In the subsequent June 1979 municipal council elections, however, the MAS, MEP, PCV, and MIR presented a united slate that captured a more impressive 18.5 percent of the vote.
Announcing during his March 1979 inaugural address that Venezuela could not continue as a "nation that consumes rivers of whiskey and oil," President Herrera promised to assume an austere posture toward government fiscal concerns. Public spending, including consumer subsidies, was ordered cut, and interest rates were increased to encourage savings. When the Iranian Revolution and the outbreak of the Iran-Iraq War caused oil prices to jump from US$17 per barrel in 1979 to US$28 in 1980, however, Herrera abandoned his austerity measures before they had had a chance to yield results.
Early on in his term of office, President Herrera also pledged to pursue policies aimed at reviving the moribund private sector. The first of these measures, however, the elimination of price controls, only contributed further to rising inflation. As with his commitment to austerity, the president failed to persist in his pledge to business; yielding to political pressures from the AD-dominated Confederation of Venezuelan Workers (Confederación de Trabajadores de Venezuela--CTV), in October 1979 the administration approved sizable wage increases. Meanwhile, the number of those employed by state-owned enterprises and autonomic agencies, which Herrera had promised to streamline and make more efficient, proliferated instead. The administration initiated, among other projects, a huge coal and steel complex in the state of Zulia, a new natural gas plant with 1,000 kilometers of pipeline, a new railroad from Caracas to the coast, and a bridge linking the Caribbean Isla de Margarita with the mainland, running in the process a deficit of some US$8 billion between 1979 and 1982. A retired Venezuelan diplomat, writing in The Miami Herald in 1983, noted that, "There must be examples of worse fiscal management than that of Venezuela in the last eight or nine years, but I am not aware of them."
The lack of confidence in President Herrera's economic management by the local business community contributed significantly to a precipitous decline in the growth of real gross domestic product ( GDP) from an annual average of 6.1 percent between 1974 and 1978 to a sickly -1.2 percent between 1979 and 1983. Unemployment hovered around 20 percent throughout the early 1980s.
An unexpected softening of oil prices during late 1981 triggered further fiscal problems. World demand for oil--on which the Venezuelan government depended for some two-thirds of its revenues--continued to decline as the market became glutted with oil from newly exploited deposits in Mexico and the North Sea. The resumption of large-scale independent borrowing by the decentralized public administration came amidst publicly aired disagreements among various officials as to the magnitude of the foreign debt. Not until 1983 did outside analysts agree on an approximate figure of US$32 billion.
Compounding growing balance of payments difficulties, rumors of an impending monetary devaluation precipitated a wave of private capital flight overseas in early 1983. While the Central Bank of Venezuela (Banco Central de Venezuela--BCV) president argued with the finance and planning ministers over what measures to adopt to meet the growing crisis, some US$2 billion left the country during January and February alone. At the end of February, the government at last announced a system of foreign exchange controls and a complicated three-tier exchange system. Under this system, the public sector retained the existing rate of US$1=B4.3, selling bolívars to the private sector at a higher rate of US$1=B6.0 or more, while a free-floating rate was established for tourism, "nonessential" imports (luxury items), and other purposes. At the same time, price controls were reinstated to control inflation. The annual increase in consumer prices, which had hit a peak of 21.6 percent in 1980, fell to 6.3 percent for 1983.
Seeking a way out of the dismal economic situation, the Herrera administration decided to transfer a greater share of ever-growing government expenses to PDVSA. The Central Bank of Venezuela appropriated some US$4.5 billion of PDVSA's reserves to pay the foreign debt, thereby throwing the petroleum corporation's autonomy to the wind. Partisan politics began to play a larger role in the selection of members of PDVSA's board of directors. In September 1983, Ravard was forced out as head of PDVSA and replaced by Humberto Calderón Berti, who as minister of energy had spearheaded the effort to bind the oil giant closer to the central government. The rapid politicization of PDVSA drew criticism both at home and abroad and cost the government credibility as well as its good credit rating with foreign banks. The unceremonious firing of the highly respected Ravard was condemned by both candidates for the December presidential election and was reversed by the new administration the following February.
By historical standards, the 1983 electoral campaign was a dull affair. Enjoying a substantial lead in opinion polls from the start, AD's Jaime Lusinchi coasted to an easy victory over former president Caldera, who was burdened with both the miserable record of the outgoing COPEI administration and the undisguised hostility of his fellow copeyano, President Herrera. Lusinchi, a physician with no previous administrative experience, ran a campaign that focused on the failings of the Herrera administration, and won the contest on December 4 with 56.8 percent of the valid vote, the highest percentage gained by a candidate since the dawn of the democratic era in 1958. Caldera gained 34.9 percent, while the combined vote of the two candidates on the left totaled 7.4 percent.
Although the 1983 elections again demonstrated the predominance of the two major parties, the record of ineffective government (known locally as desgobierno), corruption, an increasing foreign debt, and a growing list of unaddressed socioeconomic problems all contributed to a widespread disillusionment with the political process among the electorate. After twenty-five years of gradual consolidation of democracy in Venezuela, doubts had emerged as to the future stability of the much-cherished democratic political process that had proven so elusive before 1958.
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