Is Venezuela's revolution falling to earth?

President Hugo Chavez of Venezuela said with regard to the recent drop in world petroleum prices, “Venezuela is prepared to withstand any petroleum price”, and “That it should stabilize at 80 to 90 dollars, wow, that is more than enough for the socialist project.”

Venezuelan minister of Economy and Finance Ali Rodriguez Araque averred Chavez by saying “Venezuela has one of the most stable economies in the world”, but a report by Spanish daily El País says otherwise. In July 2008, Venezuelan crude oil sold for US$126 but closed on October 22 at US$60.32 per barrel. This may cause the Venezuelan government to dip into its reserves and other funds in order to pay for government spending. Even while an austerity plan has been announced by Venezuela for 2009, it actually proposes 23% increase in spending for President Chavez' Bolivarian programs. More than 45% of the budget will be funded by petroleum sales.

Chavez’s Bolivarian largesse does not stop at his borders: countries participating in his Petrocaribe scheme of subsidized oil have benefited. The financing and supply of Venezuelan oil will remain the same despite the price drop: beneficiary countries, such as Guatemala and Cuba, will only have to pay 50% of the bill within 90 days while the other half they can pay over a 25 year term with a grace period of two years at 1% interest.

The former director of Venezuela’s central bank, Domingo Maza Zavala, reacted by saying that “Venezuela cannot go on” this way. He argues that income from petroleum will be absorbed by internal public and private debt (US$10 billion – 12 billion per year). Venezuela will have to trim imports, foreign spending and public spending, and all without cutting social spending. “To be closed to the possibility of a readjustment and proclaim that it will not happen is not reasonable conduct,” said Maza Zavala, apparently referring to the red-shirted Venezuelan president.

Martin Barillas is a former US diplomat, who also worked as a democracy advocate and election observer in Latin America.