Norman Gall

SAO PAULO — The Globe and Mail

Published Wednesday, Feb. 20 2013, 6:00 AM EST

Last updated Wednesday, Feb. 20 2013, 9:11 AM EST

“We are the vile offspring of the predatory Spaniards who came to America to bleed her white and to breed with their victims,” Simon Bolivar, the Liberator, wrote in 1826 as his dream of a Gran Colombia, uniting the new South American republics, succumbed to the rivalries and intrigues of competing caudillos – military dictators. “Later the illegitimate offspring of these unions joined with the offspring of slaves transported from Africa. With such racial mixture and such a moral record, can we afford to place laws above leaders and principles above men?”

A long parade of dictators used the cult of Bolivar to mask and decorate the rough edges of Venezuelan society. The first of them was Jose Antonio Paez, the warlord of the southern plains who displaced the Liberator at the head of Venezuela’s government and later brought Bolivar’s remains back to Caracas from Colombia in 1842. Later dictators – Antonio Guzman Blanco in the 1870s and 1880s, Juan Vicente Gomez (1908-35), Marcos Perez Jimenez (1948-58) – believed themselves to embody Bolivar’s spirit.

Since he was first elected President in 1998, Hugo Chavez has carried the cult to an extreme, renaming the country the Bolivarian Republic of Venezuela. Mr. Chavez did not go so far as to claim to be the reincarnation of Bolivar, who was a scion of the white creole aristocracy. Nevertheless, he declared a certain resemblance, announcing that they were both zambos, a racial mixture of black and Indian.

“Bolivar was not white,” Mr. Chavez announced after ordering PDVSA, the state oil company, to spend $450,000 in 2006 for a carnival procession in Rio de Janeiro that carried a 12-metre-high effigy of Bolivar on a huge float. “Bolivar was born among the blacks, was more black than white. He did not have green eyes. Bolivar was a zambo.” Anthropologist Patricia Marquez observed that poor people backed Mr. Chavez because he was “one of them,” a dark-skinned army officer from the village of Sabaneta, where the southern foothills of the Andes slope into the vast savannahs that form the often violent frontier with Colombia.

This week, Mr. Chavez returned to Caracas after almost two months in Havana for his fourth surgery to remove recurrent tumours in his abdomen. While he was there, Venezuelan Vice-President Nicolas Maduro met at least five times with Cuban President Raul Castro and Vice-President Ramiro Valdes, who for many years ran the Castro regime’s security apparatus. Mr. Valdes now supervises the bulk of the 40,000 Cubans sent to Venezuela as doctors, sports instructors, planners, military advisers and intelligence agents, many of them embedded in Venezuela’s armed forces, foreign and finance ministries, ports, electricity grid, central bank and intelligence agency. The Cubans also won contracts to create electronic passports and identification cards, concentrating the personal data of all 30 million Venezuelans.

Many of these Cuban services are paid for in cash and in exchange for more than 100,000 barrels daily of Venezuelan crude oil sold to Cuba at deeply discounted prices.

The notion of an emergent “Cubazuela” remains a sensitive issue, especially among the Venezuelan military, despite purges of the officer corps to remove those resentful of Cuban interference. Whatever the immediate outcome of Mr. Chavez’s demise, Venezuela will remain a polarized society for the foreseeable future, and Chavismo will remain a contender in Venezuelan politics, in the same way that Peronismo remains a vital force in Argentina.

Nevertheless, Venezuela is now threatened with severe inflation, having run through nearly $1-trillion, mainly from oil revenues and loans, since Mr. Chavez took office. Consumer inflation, despite price controls and massive import subsidies, is poised to burst far above the official annual rate of 20 per cent. Estimates of the fiscal deficit run as high as 17 per cent of GDP, beclouded by large off-budget funds accessible only to Mr. Chavez and his closest aides. On Feb. 8, the currency was devalued by 32 per cent, which will give the government more cash to pay salaries.

Venezuela has been saved from economic collapse by the surge of oil prices over the past decade. Nevertheless, despite boasting some of the world’s biggest petroleum reserves, production has fallen from 3.2 million barrels a day in 1998 to 2.8 million today, thanks to politicization, mismanagement and corruption.

Venezuela became a leading importer of gasoline and diesel from the United States after a series of major accidents at its refineries and other installations, attributed to poor maintenance, which is also blamed for chronic electricity blackouts throughout the country. The leading symptom of social disorder is the epidemic of murders and kidnappings, which have turned Caracas into one of the world’s most dangerous cities and more than quadrupled the national homicide rate since 1998 to 73 per 100,000 people.

Venezuela is not all ruin. It still produces star athletes, beauty queens and an internationally acclaimed system of youth symphony orchestras, financed by the government. But the pity of it is that, in the 1970s and 1980s, it was a beacon of stable democracy in a region then plagued by military dictatorships.

Now, it stands as a warning to the rest of Latin America of the costs of degradation and failure of public institutions. The story of Venezuela describes the impact of surging oil revenues on weak institutions, compounded by rapid urbanization. After Mr. Chavez has gone, Venezuela will remain burdened by poverty and conflict until coherent initiatives are developed in long-term efforts to overcome disorder and polarization. The economy is in tatters while many potential successors, civilian and military, compete to assume a dubious legacy.

Part of this legacy is the splitting of democratic trends in Latin America between populist regimes exploiting weak institutions – as in Venezuela, Bolivia, Argentina and Ecuador – and more cautious republics such as Chile, Peru, Colombia and Mexico, which strive for stability, growth and social justice through deeper engagement with the world economy.

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Norman Gall is executive director of the Fernand Braudel Institute of World Economics in Sao Paulo and author of Oil and Democracy in Venezuela.