At stake in Venezuela: Chavez's Cuba-Iran axis

Alexander Cuadros / Bloomberg News /

SAO PAULO — Venezuelans voting whether to re- elect Hugo Chavez today will also decide the fate of a regime that forms the linchpin of an alliance from Iran to Cuba against U.S. policies.

Chavez has tapped the world’s largest oil reserves to provide about $7 billion annually in subsidized crude to Cuba and its Caribbean neighbors, more than three times what the United States spends in aid in the Western Hemisphere. He ended anti-drug cooperation with the U.S. in 2005 and signed more than 100 accords with Iran even as President Mahmoud Ahmadinejad’s government faces growing isolation over its nuclear program.

In the 58-year-old president’s tightest election yet, challenger Henrique Capriles has blasted his rival for “exporting revolution” while failing to address a surge in crime and 18 percent inflation. Without Chavez, countries such as Nicaragua and Bolivia would lose their “standard bearer,” said Cynthia Arnson, Latin America program director at the Woodrow Wilson Center for International Scholars in Washington.

“A Capriles victory would dramatically alter Venezuela’s alliances,” Arnson said in an interview. The loss of Chavez “could further isolate the small number of countries that have considered themselves part of that alternative political vision. Cuba would be a big loser.”

Venezuela receives thousands of Cuban doctors, nurses and sports trainers in exchange for a daily supply of 100,000 barrels of oil that undermines the U.S. embargo against the 53- year-old government of Raul and Fidel Castro. Chavez bonded with Fidel after the Cuban revolutionary supported him during a failed 2002 coup. He has traveled to the Caribbean island to undergo surgery for cancer three times since June last year.

At a campaign event Oct. 2, Chavez said he’d received a letter of support from Castro.

“Viva Fidel!” Chavez told thousands of supporters at the rally in Barquisimeto. “Viva Cuba!”

Iran is a ‘holy matter’

As U.S. and European sanctions aimed at curbing Iran’s nuclear program send the rial plunging and sow unrest, Chavez has remained a steadfast ally, saying that maintaining ties with the Islamic Republic is a “holy matter.” He’s visited Iran nine times during his almost 14 years in power and secured agreements to help build car and tractor plants in Venezuela.

The U.S. last year imposed sanctions on Petroleos de Venezuela, the state oil company, for working with Iran’s energy industry. According to the State Department, it sent two cargoes of gasoline additives worth $50 million to Iran from December 2010 to March 2011.

After the U.S. imposed an arms embargo on Venezuela in 2006, Chavez tapped $4 billion in financing from Russia to buy military equipment. Chavez said in June that Venezuela would produce 25,000 assault rifles a year in addition to ammunition, grenades and bulletproof vests with help from the U.S.’s former Cold War foe.

Aid to Latin America

In Nicaragua, Venezuela’s oil and aid program totaled $609 million last year, or almost 10 percent of gross domestic product, according to the Central American country’s central bank. That helped finance agricultural cooperatives and paid bonuses to 150,000 government workers, the bank said in a March report.

U.S. aid to Latin America and the Caribbean totals about $1.9 billion annually, including counter-narcotics programs for Central America, disaster assistance in Paraguay and education projects in Jamaica, according to the Congressional Research Service.

When Argentina was blocked from international credit markets in the wake of its 2001 default on $95 billion of bonds, Chavez stepped in to buy more than $5 billion in debt, helping then-President Nestor Kirchner snub investors such as New York- based hedge fund Elliott Associates. Kirchner in 2007 let Chavez host an anti-U.S. rally at a Buenos Aires stadium.

Chavez’s defense of international pariahs such as former Libyan leader Moammar Gadhafi and Zimbabwe’s Robert Mugabe has drawn ridicule by Capriles.

“Didn’t we give Bolivar’s sword to Gadhafi two times?” Capriles said at a news conference Oct. 1, referring to Latin American liberator Simon Bolivar. “Who’s going to want to invest in our country? We want relations with countries we have an affinity with.”

Relations up for review

If elected, Capriles has vowed to review all of Venezuela’s international agreements, saying the country shouldn’t be “giving away” its oil resources. Chavez’s foreign projects are undermining development in Venezuela, he said at his final campaign rally.

“What has 21st-century socialism done for you?” Capriles asked supporters. “He’s given your resources to other countries. Electric plants in Nicaragua, tractors in Honduras, ambulances in Bolivia. He’s turned the lights on abroad while it’s dark at home.”

Still, Capriles said in an Oct. 3 interview on Venevision that he’d maintain relations with countries such as Cuba and China.

Economic conditions

Boosted by election-year spending, Venezuela’s economy will expand 5 percent in 2012, according to the median estimate of analysts polled by Bloomberg. The country’s 18 percent inflation rate is the highest among 102 economies tracked by Bloomberg after Belarus, Iran and Argentina. It has the highest borrowing costs among major emerging markets, according to JPMorgan Chase indexes.

Venezuela’s ties with China, which has lent the government $42.5 billion, may even improve in a Capriles administration, said Javier Corrales, co-author of “Dragon in the Tropics: Hugo Chavez and the Political Economy of Revolution in Venezuela.”

“You’re likely to see more attention to efficiency in oil production and ultimately the Chinese might welcome that,” said Corrales, a political science professor at Amherst College in Massachusetts. “I would be surprised to see a major issue between them.”

Regardless of the result, Chavez has changed the region’s political dynamic by championing an alternative to U.S. power and economic policies, said Miguel Tinker Salas, a professor of Latin American history at Pomona College in Claremont, Calif., and author of “The Enduring Legacy: Oil, Culture and Citizenship in Venezuela.”

“He blazed the trail,” Tinker Salas said. “He’s transformed the way that Latin America was viewed.”

Turbulent times

Venezuelans, whose oil-export driven economy produces little else, have become more dependent than ever under Chavez on state handouts and Capriles has expressed no intention of weaning them from government aid.

He has painted himself a center-leftist, promising to keep the missions and not to thin public payrolls. Capriles is, however, solidly backed by Venezuela’s right and that has stoked fears of a huge purge of Chavez loyalists if he wins.

The fears have fueled sporadic violence. Little has been lethal, but two Capriles supporters were shot dead last weekend in the president’s home state of Barinas, and some blamed Chavez supporters.

Opinion polls have varied widely and are largely considered unreliable, so intuition is getting a workout.