More of the same from Hugo Chavez

Venezuelan President Hugo Chavez just convened this past week’s Summit of the Bolivarian Alliance for the Peoples of our America (ALBA), where he called for a 21st Century "Ayacucho" representing the battle for socialism and a fight against capitalism. On the 200th anniversary of Venezuela’s independence, Chavez welcomed Latin America’s leftist leaders saying, "We are just a few hours away from the great party."  

Ayacucho, Peru is one of the battlegrounds where Simon Bolivar fought against the Spanish leading to the independence of Peru and the rest of South America. It is also the birthplace of the Communist Party Shining Path (Sendero Luminoso) movement, which was defeated in 1992 after years of terrorizing Peruvian citizens. Today, Peru is an example of change and progress in comparison to some of its neighbours’ new experiments with Chavez and his old style Cuban socialism.

Chavez’s ALBA was created to provide an alternative to the goal of a Free Trade Area of The Americas (FTAA). Although previous negotiations failed to eliminate hemispheric trade barriers and the FTAA didn’t come to fruition, the Bush administration still made substantial free trade progress with a series of bilateral trade deals with Peru, Colombia, and CAFTA-DR. Chavez has objected stating that "if the FTAA takes effect, we will be opening the way for more terrible inequalities that would fill our societies with violence."

ALBA is nothing more than PetroCaribe, Chavez’s vehicle for providing Venezuelan oil at below market prices to his cronies in exchange for goods and services aimed at poverty alleviation. Since ALBA is mainly financed by Chavez’s subsidized oil exports, its sustainability will be severely undermined should Venezuela’s oil revenue suffer a hit. The future of ALBA is dependent on a stable Venezuelan economy. However, with Venezuela’s inflation the highest in the region, the country recently becoming indebted to China by 20 billion dollars, and nation-wide power outages increasing domestic demand for oil, the future looks at best unsustainable.

These deals will place vulnerable countries that are burdened with high inflation and poverty rates into more long term debt. Take for example, the Dominican Republic, which now owes over 1.2 billion dollars, up from approximately 500 million in 2006. Or Honduras, which has withdrawn from ALBA, now has 80 million dollar debt. Some estimates are that by 2015, CARICOM (the 15-nation Caribbean community) nations will owe one-third of their total external debt to Venezuela. If Venezuela decides to change prices or reduce oil supply, the nearly 20 countries that are part of PetroCaribe and the other oil importing ALBA members will be facing a significant challenge to pay off their debts.

How will weaker, more indebted and unstable economies bring their people out of poverty and poor living standards? Instead of top-down income distribution by overextended governments, sustainable poverty alleviation comes from enterprise-driven economic growth that creates increased job opportunities in stable and competitive economies. Brazil’s free market economy is a prime example of economic growth and a rise in living standards that have come from empowered citizens, rather than the allocation of limited oil revenues. The country still has a ways to go but the government’s focus on managing the inflation rate, increased investments, and other fiscally responsible measures has created an environment that allows for citizens to pursue economic opportunities and improve their lives.

As Brazilian citizens continue to benefit from free market principals and foreign investment, let’s hope ALBA’s constituents do not get left behind with Chavez and his leftist Caudillos who prefer to redistribute limited natural resources at the expense of citizen-empowerment.

The Bush administration sent the Colombian FTA for approval in 2007 but the Democratic Congress did not act on it. As a counter to Chavez’s latest gambit, the Obama administration should act now and ask Congress to pass the Colombian FTA and demonstrate its commitment to freedom, progress, and prosperity for Latin America. 

(Special thanks to Jiehae Choi for her assistance)