Chavez and Peron

Latin American strong men, with the possible exception of Chile's Pinochet, have often promised sweeping economic reform, and failed to deliver growth, efficiency or equity. It doesn't seem to matter whether they are from the right or the left, popularly elected, or rise to power in a coup; their empty promises of reform litter the Latin American landscape.[1]

Juan Peron is the prototypical Latin American strongman. He gained national prominence through his political machinations while in the military, and won the presidency in quasi-democratic elections. He campaigned on economic reform promising to free Argentina of foreign influence, and went so far as to nationalize foreign owned companies including British railroads, and ITT. In part, the purchases were financed by windfall revenues Argentina earned during the WWII, supplying foodstuffs to England. The price paid by the Argentine government seemed high as noted by contemporary critics (Crawly (1984), A House Divided: Argentina 1880-1980, C. Hurst & Company, London).

...Miranda returned to the negotiating table, and after much tough talking emerged in January 1947 with a new deal, this time for the outright purchase of the railways. The cost of the acquisition, originally calculated at 1,000 million pesos, first doubled to 2,000 million ('for sentimental reasons and debts of gratitude with England,' Miranda said), and was finally fixed at 2,700 million, as the Argentine government took over the legal and administrative costs of the operation and the debts the railways still owed the pension funds and the workers. The Socialists sneered in a clandestine publication: 'Italy paid 325 million dollars as the sum total of war reparations, while we have paid a 375 million dollar surplus only for sentimental reasons.

The Peron administration purchased Union Telefonica from ITT for 319 million peso (95 million dollars). The government granted ITT a ten year monopoly for the supply of materials and technical assistance as part of the purchase price. Again, critics noted the high purchase price.

Venezuela, under Hugo Chavez, has similarly undertaken a program of nationalizations financed in part by oil revenues, but oil production is falling as are oil prices. Chavez must decide how to hold onto his socialist reforms in a rough economic environment. It's not that Venezuela lacks reserves, the Orinoco Field has an estimated 235 billion recoverable barrels; it is that the Western oil companies understand developing oil fields better than their competitors. Simon Romero of the International Herald Tribune reported on January 15, 2009 that

In recent years, Chávez has preferred partnerships with national oil companies from countries like Iran, China and Belarus. But these ventures failed to reverse Venezuela's declining oil output. State-controlled oil companies from other nations have also been invited to bid this time, but the large private companies are seen as having an advantage, given their expertise in building complex projects in Venezuela and elsewhere in years past.

Hugo Chavez was quietly asking foreign oil companies like Chevron, Royal Dutch/Shell and Total of France to bid on new projects to open new oil fields to gain their expertise, which he had assumed was inconsequential. Like the Peron regime in Argentina sixty years before, the Chavez regime will need to pay a premium to gain the needed expertise. In Chavez’ case, the premium will be for the property rights risk that he created. The Venezuelan people will pay that price.

[1] To be fair, democratically elected regimes have not had much more success.

[2] Under Chavez' regime, both political freedom and civil rights in Venezuela have fallen according to Freedom House, leaving the countries status as partially free rather than free. During the same period, Venezuela's economic freedom has fallen from 56.1 to 29.9 according to the Heritage Foundation.