VENEZUELAN INTERNATIONALISM OIL AND INFLUENCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79B00457A000400030001-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 22
• Document Creation Date: December 20, 2016
• Document Release Date: January 20, 2006
• Sequence Number: 1
• Publication Date: July 1, 1977
• Content Type: REPORT

Approved For Release 2006/01/30: CIA-RDP79B00457A00040WQ('aentlal
E CORD COPY
Return to 14i"pSG,M,811Dr
Paragraphs clan irk d by:
Venezuelan Internationalism
Oil and Influence
Confidential
RP 77-10166
July 1977
Copy N 2 25
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 25X1 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Venezuelan Internationalism
Oil and Influence
Central Intelligence Agency
Directorate of Intelligence
July 1977
Key Judgments
Significant changes have taken place in Venezuela in the past two
decades. A century of relative isolation has been replaced by a period of
highly visible international activity, in an effort to increase Venezuelan
influence in the region and in the world and to replace a heavy dependence
on the United States with a growing regionalism and Third World
interdependence.
A number of factors coincided to push Venezuela toward this posture,
most importantly the dramatic rise in petroleum revenues following the
OPEC price hikes in 1973-74. Other factors have included a series of activist
presidents and the lessons in multinational cooperation that were learned
from the OPEC experience.
After the OPEC price increases, Venezuela initiated an unprecedented
number of financial agreements with neighbors and regional banks. In
1974-75, more than $2.5 billion (the equivalent of 10 percent of its 1974
GNP) was allotted to the foreign aid sector, although the entire sum was not
disbursed in those two years. At the same time, President Carlos Andres
Perez and other high-level members of the government became very active in
asserting Venezuela's role in the region and championing the cause of
underdeveloped countries worldwide.
Proved Venezuelan reserves are beginning to dwindle, however, and a
conflict is growing between domestic development and an active foreign
policy. Present estimates of the world energy situation lead to the conclusion
that Venezuela's oil revenues will grow little, if at all, through 1980, but that
they may rise significantly between 1980 and 1985. Although the populace
enjoys the country's increased stature on the world stage, pressure to spend
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
less money abroad and more at home is increasing. Domestic development
programs are costing more and achieving less than anticipated, and the bill
for imports is rising steeply. The national elections scheduled for December
1978 will surely sharpen this issue, and extensive new foreign assistance
programs will probably become too controversial for any candidate to
support.
Thus in the next few years Venezuela will probably wish to avoid large
new economic assistance programs. It will be a period of some retrenchment,
for without excess oil revenue to dispose of, there are few ways in which
Venezuela could conduct an active and effective foreign policy; it has
relatively weak cultural and historical ties to other countries in the region; it
has not yet established a sound industrial base for new export-led growth; its
military is essentially a domestic defense force; and its corps of diplomatic
personnel, with a few exceptions, is undistinguished and disorganized.
Only the expectation of increased oil prices and revenues in the 1980s
will support a policy of continued Venezuelan internationalism in the next
few years, but it will probably focus more on high visibility and rhetorical
activities than on further economic assistance.
ii
CONFIDENTIAL
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
FOREWORD
By its past standards, Venezuela has pursued an extraordinarily active
foreign policy in the last few years. It has initiated an unprecedented series
of economic agreements with Central American, Caribbean, and Andean
countries. It has also participated vigorously in the global dialogue between
the developing and the developed countries. This paper investigates the
reasons why these activities were undertaken and what the future holds for
Venezuelan internationalism.
The study forms part of a cumulative project to analyze the rise in
influence and assertiveness, among the developing countries, of a number of
potential "second-order" powers, whose ambitions and activities seem likely
increasingly to complicate the efforts of the United States to cope with
global and, especially, regional issues. The first step of this project was the
publication of a working paper
It established a framework for identifying
potential second-order powers, examining how they might interact region-
ally, and determining how their new assertiveness might affect their relation-
ships, and those of the region, with the United States. The next step is the
publication of three papers, of which this is the second, on the foreign
policies of Mexico, Venezuela, and Cuba as potential second-order, or
regional, powers. The final step will be a paper studying the interplay of
Mexico, Venezuela, and Cuba in the Caribbean, assessing them as potential
competitors for power in the region, and analyzing the consequences of their
interaction for US interests in the area.
These studies are meant primarily to inform the Latin American special-
ist. But it is also hoped that they will contribute to a better understanding of
the rise and interaction of potential second-order powers in other regional
contexts.
iii
CONFIDENTIAL
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Venezuelan Internationalism
Oil and Influence
Isolation
Even though Venezuela is classified as an
Andean country, it occupies an anomalous
position midway between the Caribbean and
the Andean regions in South America without
really belonging to either. Geographically, the
country contains both Caribbean and Andean
features, but an identity as one or the other has
never developed. In the days of Spanish colonial
rule, adventurers and officials merely passed it
by on their way to the west coast of the
Americas. Compared to Colombia and Peru, it
was a backwater of the conquest, and even
before that it was a backwater of the great
Indian empires.
After independence in 1821 and unsuccessTU
. 25X1
attempts to form a union with Colombia and
Ecuador (to be called Gran Colombia), Vene-
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
zuela endured a succession of tyrannical dicta-
tors until the death of Juan Vicente Gomez in
1935. Throughout this period Venezuela traded
relatively little with the rest of the world, even
with its neighbors in the Andes and the Carib-
bean. Because of its unusually violent and
repressive regimes, it was regarded as something
of a pariah. A former president wrote: "Vene-
zuela did not enter the 20th century until the
death of Gomez.... Until then ours was a semi-
feudal, semi-colonial state still living in the 19th
century." Liberalizing elements then began to
gain influence, although they suffered a severe
setback in the dictatorship of Marcos Perez
Jimenez from 1950 to 1958. Even as Venezuela
began to emerge from fiefdom, however, trade
ties grew significantly only with the United
States, and the oil which allowed Venezuela to
grow rich and to build political stability created
resentment among its neighbors.
Venezuela's historical isolation from other
countries in the region was exacerbated by
various linguistic and cultural differences. Guy-
ana, Trinidad, the Windward Islands, the Neth-
erlands Antilles, and Brazil were all colonized
by non-Hispanic cultures. Venezuela's only
neighbor with a Hispanic heritage is Colombia,
and the development of good relations between
the two has been impeded by continuing border
disputes. It was not until 1958, when Perez
Jimenez was overthrown and Romulo Betan-
court was elected president, that Venezuela
began to emerge as a politically and economi-
cally maturing nation.
Betancourt-leader of the Democratic Action
(AD) Party-served as president from 1959 to
1964, and his success in completing his elected
term in office became a source of great pride
for Venezuelans. He developed closer ties to the
United States and began the reversal of Vene-
zuela's traditional isolation by establishing the
Betancourt Doctrine, which attempted to pro-
mote democracy in Latin America by ostra-
cizing nondemocratic coup-installed govern-
ments and withholding formal recognition from
them. The list of outcasts included at various
times the Dominican Republic, Cuba, Panama,
Nicaragua, Bolivia, Peru, Guatemala, Ecuador,
Honduras, Haiti, Argentina, Brazil, and Para-
guay. Cuba was especially vilified because of its
support to antidemocratic, and specifically
anti-Betancourt, guerrillas. The Doctrine contin-
ued through the term of Betancourt's AD Party
successor, Raul Leoni Otero, and was not
changed until Rafael Caldera Rodriguez, a
member of the COPEI (Committee for Indepen-
dent Political Electoral Organization) party,
took office in 1969 and substituted for it the
concept of "ideological pluralism."
One of the factors in this reversal was that
Venezuelan business at this time saw the Carib-
bean as a potential market, and as a member of
COPEI, Caldera was free to change policies
associated with the previous AD leaders. With
his Foreign Minister Aristides Calvani., he then
began to promote closer ties with Venezuela's
neighbors. Calvani, born in Trinidad of Vene-
zuelan parents, visited every Caribbean capital
except Havana and Port-au-Prince, and together
with Caldera began to assert that Venezuela had
a role to play in the region. The only country
left beyond the pale was Cuba, because its
revolutionary doctrines and its continued open
support for subversive groups had led to general
hemispheric rejection, expressed in its expulsion
from the Organization of American States
(OAS) in 1964. In 1972, as a result of Caldera's
efforts, Venezuela became the first Spanish-
speaking member of the Caribbean Develop-
ment Bank, to which it made an initial contri-
bution of $9.5 million.
Caldera's successor, Carlos Andres Perez of
the AD party, has not only continued this new
foreign policy orientation, he has expanded it
greatly and identified himself personally with
Third World aspirations. He played a leading
role in efforts to reintegrate Cuba into the
American system. Ile has also attempted to
resolve long-standing border disputes with Co-
lombia and enjoys a close personal friendship
with Colombian President Lopez Michelsen. So
far, however, this latter -ambition has been
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
frustrated by a failure to gain a national
consensus on the issue and by pressure from the
Venezuelan military, which opposes concilia-
tion on the border issues.'
Oil
Perez' personal interest in expanding Vene-
zuela's regional leadership role was given a
major boost by the OPEC actions of 1973-74.
On the one hand, the exercise of economic
power by OPEC in quadrupling world oil prices
provided the high visibility, prestige, and finan-
cial means to support a more active role. On the
other, a new opportunity for leadership by
Venezuela appeared because vastly increased
expenditures for petroleum by the oil-poor
countries of the Caribbean region created an
unusual need for financial aid in the form of
loans or preferential credit plans for the pur-
It is appropriate that oil should have been the
basis for this major foreign policy move, for oil
has been almost a synonym for Venezuela in
this century. Since 1914, when the first major
deposit of oil was discovered in Lake Mara-
caibo, revenues from petroleum extraction have
' This is virtually the only external issue on which the military
attempts to exert its influence. Since the 1960s, when the army
carried out successful operations against Cuban-backed guer-
rillas both in urban areas and in the remote countryside, the
military has considered itself mainly a defensive and counterin-
surgency force. Recently, all the services have purchased new
equipment, partly as a replacement and modernization program,
but partly also in an arms competition with Colombia: 80
medium tanks and 40 light tanks were recently purchased from
France, probably to create an armored brigade near the
Colombian border; Canberra bombers and Mirage fighters, even
with an in-commission rate of only about 40 percent, place the
air force significantly ahead of Colombia's; the navy, concerned
about the possibility of a clash with Colombia over the disputed
territorial waters in the Gulf of Venezuela, has recently
purchased four frigates from Italy-the first to be delivered in a
couple of years followed by one per year thereafter. In general,
the military has been satisfied and, aside from disagreements
with Perez over the Colombian problem, it is firmly in su ort
of the government.
2The Dominican Republic, for example, saw its balance-of-
payments current-account deficit shoot from $99 million in
1973 to $244 million in 1974 as imports rose from $428
CONFIDENTIAL
financed a growing economy. By 1920, Vene-
zuela was the world's largest oil exporter,
remaining so until the 1960s when Middle
Eastern countries took the lead. Its domestic
fortunes have been closely tied to oil revenues
which rose slowly over the past half century.
Many times it appeared as though declining
world demand or confrontation with the oil
companies would cause revenues to fall, but
external events such as the Suez crisis or
worldwide price rises always came to the rescue,
sustaining a slow but steady pattern of growth.
Total
Government
Income
Petroleum
Revenues
Petroleum
Revenues
as Percent
of Government
Income
1910
16.3
0
0
1920
19.1
0.2
1
1930
49.0
11.0
22
II
1940
76
9
22
8
30
.
.
1950
446.9
210.0
47
1960
1,158.0
699.5
60
1970
2,214.0
1,340.6
60
1975
9,544.0
7,377.0
77
These continuously rising revenues have freed
the Venezuelan government from the need to
resolve what would normally be conflicting
fiscal demands. Indeed, the success of the
nascent democratic tradition in Venezuela,3
especially the peaceful turnovers of government
from one party to another in 1969 and 1974,
may be due as much to the luxury of relatively
high government revenues as to the undeniable
Venezuelan commitment to democratic proc-
esses. Such revenues have reduced the stresses
on government normally found in developing
countries of whatever political persuasion.
In addition to the overwhelming impact
which oil has had on Venezuela's domestic
economic and political life, the success of OPEC
3The governments of Romulo Betancourt (AD) from 1959 to
1964, Raul Leoni Otero (AD) from 1964 to 1969, Rafael
Caldera (COPEI) from 1969 to 1974, and Carlos Andres Perez
(AD) from 1974 to the present.
ILLEGIB
3
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Petroleum Export Prices
and Government Take Per Barrel
Petroleum Sector's Contribution
to GDP at Current Prices,
to Central Government Revenues
and to Exports
Perc$btege of Ybtal Exports
Realized Export Prices
1971
573252 677
mico Latinoarnericano-SELA) and the Andean
['act. clearly reflect the OPEC lesson, which is
that organizing relatively weak states for collec-
tive action is an effective way to control natural
resources and to gain foreign policy goals.
When OPEC raised prices in 1973-74 and the
price of Venezuelan crude went from $3.33 per
barrel to $9.13 per barrel, Perez, assuming
office in March 1974, faced a number of
has had far-reaching effects on its conduct of
foreign policy. Juan Pablo Perez Alfonzo, then
minister of mines and hydrocarbons, was largely
responsible for the formation of OPEC in 1960.
Perez Alfonzo was one of the first to become
convinced of the need for collective action by
oil producing states in order to bargain more
effectively with the large oil corporations. Early
disagreements and indecision among the mem-
ber countries slowly disappeared as OPEC ma-
tured, and its unprecedentedly successful collec-
tive price hikes in 1973-74 left a strong mark on
Venezuela's approach to international prob-
lems. President Perez' present championing of
the New International Economic Order (NIEO)
and of regional associations, such as the Latin
American Economic System (Sistema E cono-
possible uses for these revenues:
? Increasing efforts to "sow the oil," that is,
to invest oil revenues in building a strong
economy and in promoting social, educa-
tional, welfare, and health programs so that
healthy growth can be sustained regardless of
the future role of oil in the economy.
? Accelerating the process of nationalizing
the petroleum industry by providing the
funds for compensation and negotiating pay-
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
ment to the owners rather than by waiting
until the concessions ran out in the 1980s. F
? Funding military spending programs.
? Increasing regional influence through eco-
nomic largesse.
All of the above goals benefited in some
measure from the OPEC bounty. The ambitious
V Plan of the Nation (the 1976-80 five-year
plan) is directed toward sowing the oil and
promoting domestic welfare programs. The
petroleum industry was nationalized in January
1976, years earlier than the original plans, as
acceptable compensation terms were agreed
upon with the oil companies. The military's
modernization program and policy of arms
parity with Colombia have already been noted.
Finally, a program of international loans and
grants has been undertaken, focusing on the
Caribbean, Central American, and Andean Pact
countries.
Recent Political and Economic Activities
Since the 1973 price increases and the
resultant deluge of income, Venezuela has
undertaken numerous financial agreements with
regional groups, individual countries, and inter-
national banks, which are unprecedented in
number or scope for any Latin American
country. These activities were the first effective
recycling of petrodollars, aside from bank de-
posits and arms purchases by the Arab States.
In 1974 and 1975 Venezuela allocated over
$2.5 billion for use in the foreign sector, mostly
in loans to international financial institutions.
This prodigious figure-which has been only
partially disbursed-was equivalent to approx-
imately 10 percent of Venezuela's 1974 GNP.
International activities continued in 1976 and
the first half of 1977, but at severely curtailed
levels of funding, and more emphasis was placed
on Venezuela's self-proclaimed leadership of the
Third World. President Perez took two well-
publicized trips-to Europe and the Soviet
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Union in November 1976 and to the Middle
East in April 1977-which emphasized Vene-
zuelan involvement in world affairs and which
were without parallel in Venezuela's history.
0
The Perez government began to use oil
income to finance foreign economic assistance
programs within a month after he took office.
In April 1974, Perez' finance minister, Hector
Hurtado, announced to a meeting of the Inter-
American Development Bank (IDB) in Santiago
that Venezuela would lend $500 million, in five
yearly installments, to the IDB for use in
regional development projects. Specifically
mentioned were loans to develop natural re-
sources, industry, and agricultural processing
facilities in least developed member states, loans
to finance exports of Latin American raw
materials and manufactured goods, particularly
outside the region, and loans to provide work-
ing capital or equity investment in public or
private firms in Latin America. The money was
to be channeled through the Venezuelan Invest-
ment Fund (Fondo de Inversiones Venezolano-
FJV) and committed to the IDB, which would
approve projects and disburse funds as appropri-
ate. At the end of 25 years, unused funds would
revert to Venezuela.
In the next 18 months similar commitments
(also through the FIV) were made to the World
Bank for $500 million, to the Andean Develop-
ment Corporation for $60 million, to the
Caribbean Development Bank (CDB) for $25
million, and to the Central American Bank for
Economic Integration (CABEI) for $40 million.
In the case of CABEI, Venezuela agreed to
purchase CABEI bonds over a period of four
years, half denominated in dollars and half in
Venezuelan bolivares. In addition, the Vene-
zuelan central bank contributed $780 million in
1974 and 1975 to oil facilities administered by
the International Monetary Fund (IMF), of
which $440 million went to non-OPEC LDCs.
All these funds are made available by Vene-
zuela but are to be administered by the inter-
national institutions. Except for the IMF oil
facilities, which are used to finance balance-of-
payment problems, the money is used to make
loans and investments in projects which meet
bank standards. The going rate for such loans is
approximately 8 percent annual interest over 25
years, which is slightly lower than currently
available commercial terms. Because the FIV is
required by law to earn a return on its foreign
investments no less than that earned by the
international financial banks, the above arrange-
ments assure sensible investments in projects
which meet the international banks' standards
of soundness.
A second major type of financial activity
emerged from a meeting of the heads of state of
the Central American republics, Panama, and
Venezuela, which was initiated by Perez and
held in Caracas in December 1974. Perez
presented a plan, which was adopted by the
conferees and announced in the town of Puerto
Ordaz, to ease the foreign exchange and bal-
ance-of-payments problems suffered by oil-im-
porting countries as a result of higher oil prices.
The Puerto Ordaz plan was a novel and inge-
nious response to the demands of such coun-
tries; it created a pricing scheme that would
benefit Venezuela's traditional regional markets
without seriously threatening OPEC solidarity
on prices. The plan was essentially worked out
ahead of time and, despite requests for even
more favorable concessions, Perez remained
firm on the terms.
The agreement establishes a "reference price"
of approximately S6 per barrel (the December
1973 price of Venezuelan oil) as the price that
is paid directly to Venezuela in hard currency;
the difference between the reference price and
the current world price (approximately $13 per
barrel in 1974) is deposited in local currency in
the importer's central bank. The price differen-
tial is decreased by equal amounts over a
six-year period, so that by 1981 the importers
will have to pay the full price for oil. These
funds are used for mutually approved develop-
ment projects, which must meet standards set
by the international banks. In the language of
the agreement, the loans are to be used to
finance investment programs and projects "con-
tributing to the development of the natural
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
President Perez (r) at the time of the signing of the Puerto Ordaz Agreement in December 1974 with
Central American leaders (1-r) Torri/os (Panama), Somoza (Nicaragua), Lopez (rear) (Honduras),
Laugerud (Guatemala), Molina (El Salvador), and Oduber (Costa Rica).
resources of the concerned country and the
promotion of its exports" and for "effecting
regional economic integration and the develop-
ment of trade." In return, Venezuela receives
certificates of deposit from the central banks
which bear 8 percent interest annually over 25
years, with a six-year grace period for repay-
ment. Funds which are not used for projects
require repayment after only six years.
The Puerto Ordaz arrangement serves many
purposes simultaneously by:
? Easing the current foreign exchange burden
on the recipient countries, which can use
local currency for part of the oil purchase
price, and reducing the short-term balance-of-
payments constraint that might otherwise
dictate trade controls.
? Reducing the need for deflationary pro- 25X1
grams to counter the effect of higher prices
in the recipient countries (such as slowing
down industry to curb oil consumption).
? Contributing to Central American integra-
? Blunting criticism of the oil-exporting
coun tries-especially Venezuela-by the
Third World countries in general and Central
__
America in particular. F
I
Maintaining Venezuela's traditional GIB
markets in the region, tying them more
closely, and through its development aspect,
strengthening those markets for other types
of trade in the future. 25X1
? Reducing the tremendous domestic infla-
tionary impact of Venezuela's vast income
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
and balance-of-payments bulge, spreading
part of it over 25 to 30 years,
? Maintaining at least nominally a single
price for OPEC oil.
D
The Puerto Ordaz ceiling commitments, to be
used between 1975 and 1980, are:
Guatemala
105
Honduras
79
Nicaragua
57
I:1 Salvador
80
Costa Rica
60
Panama
81
Costa Rica's experience illustrates how the
plan actually works. During the first year after
Puerto Ordaz, $16 million of the limit was used
as counterpart funds to World Bank, 1DB, and
Agency for International Development (AID)
loans for agricultural development and con-
struction projects: a road from Siquirres to
Limon, improvements to the international air-
port, and a new port at Caldera. In November
1976 a second set of loans for $12 million was
approved by the FIV for continued construc-
tion on the road, the port, and the Arenal Dam
Hydroelectric project. Construction of a refin-
ery was discouraged as unsuitable for Costa
Rica.
The other Central American republics have
acted similarly, using a portion of the credit
limit for projects that appear to be approved on
their economic and technical merits rather than
on political considerations; there is no evidence
that Venezuela has used the potential economic
ILLEGIB leverage of this program for political ends.
Yet another form of economic assistance
undertaken by Venezuela is special loans made
either bilaterally or to regional groups, and tied
directly to various development projects.
Among these special projects are:
? An interest-free loan of $15.7 million over
20 years to Guyana, used for budget stabili-
zation and to continue ongoing projects.
* A deferred-oil-payment plan for up to $42
million at 4 percent annual interest to Barba-
dos, similar to the Puerto Ordaz Plan.
* Another such arrangement with the Do-
ininican Republic. signed in December 1976
at the end of Perez' world tour, which
provides up to $60 million to aid in oil
purchases but appears to be administered
differently from the Puerto Ordaz arrange-
ment.
n addition,
Venezuela agreed to a preferential purchasing
arrangement for Dominican sugar.
? A set of contracts between Jamaica and the
FIV for loans up to $50 million to be used
for domestic development projects.
? An agreement in June 1975 to provide a
loan to Antigua for the purchase of the
privately owned West Indies Oil Refinery. In
meetings with Premier George Walter, Perez
also agreed to provide a reliable source of
crude oil and to assist in financing an
expansion of Antigua's refining capacity.
? Contracts with Bolivia, one through the
Andean Development Corporation for $1
million for feasibility studies, and another,
apparently a bilateral arrangement, for $2
million (at I percent annual interest over 40
years) for agricultural projects. These were
signed in June 1976, two years after Presi-
(lent Banzer had rather optimistically spoken
of "the valuable cooperation of our sister
republic Venezuela" and rumors mentioned
sums of $50 million in aid.
? A cooperative arrangement with Mexico,
Nicaragua, Costa Rica, Jamaica, and Cuba to
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
CONFIDENTIAL
President Echeverria since July 1974 and later
by Perez. SELA is defined as "a regional
organization for consultation, coordination, co-
operation and economic and social promotion
of a permanent nature." It is to avoid strictly
political activities, which are the purview of the
OAS, and to concentrate on Latin American
unity in economic dealings. The Permanent
Secretariat is located in Caracas, and Venezuela
25X1 agreed to fund the interim budget.
25X1
Presidents Echeverria and Perez
Venezuela also assumed a central role in the
formation of the Caribbean Tourism Associa-
tion, which held its first meeting in Caracas in
1974. Perez at that time pledged his support
and recommended that Spanish join English as
the official language of the Caribbean.
As mentioned, Perez actively sought the end
of OAS sanctions against Cuba. This was not
advanced as a disavowal of traditional Vene-
zuelan attitudes toward nondemocratic regimes
in the hemisphere but as a recognition that the
OAS sanctions were anachronistic and ineffec-
tive. Along with the presidents of Colombia and
Costa Rica, Perez lobbied for a vote to lift the
strictures at the November 1974 meeting in
Quito. Many Latin American countries had
already resumed bilateral relations with Cuba,
and although the Quito effort failed, it was such
a narrow defeat that most other Latin American
countries reestablished relations, especially after
another OAS vote the following July left the
matter in each country's hands.
Talks then began to reestablish commercial
relations between Venezuela and Cuba, but met
with little success. Perez finally resurrected an
idea originally proposed by President Caldera of
a multilateral deal involving Cuba, the Soviet
Union, and Venezuela's oil customers in West-
ern Europe. To reduce transport costs for all
parties, Venezuela would ship its oil to Cuba,
normally supplied by the Soviet Union; in
return the USSR would supply Venezuela's
West European customers. This plan was
bruited about for months, and was a partial
rationale for Perez' visit to Moscow in Novem-
ber 1976. Although Perez announced that the
deal was concluded then, problems remain, and
it has not yet been implemented. An unrelated
agreement, however, was signed in April 1977
whereby Soviet tankers, on their return trip
from Cuba, will carry Venezuelan oil to Italy.
In his pursuit of regional visibility and influ-
ence, President Perez has also put himself
forward as a mediator in regional disputes,
offering to help Bolivia, Chile, and Peru resolve
their territorial disagreements over a Bolivian
corridor to the sea and to host a meeting
between representatives of Guatemala and
Belize (without the United Kingdom) to help
solve their conflict.
In addition, Venezuela has attempted--to-
assume a role of political leadership in the
North-South dialogue between the developing
countries and the developed countries. Manuel
Perez Guerrero, the former minister of energy
and mines and present minister for international
economic affairs, is co-chairman of the Confer-
ence for International Economic Cooperation
(CIEC), and President Perez himself has been
quite visible, advocating Third World goals in
various other forums. During his November
25X1
25X1
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
finance a Caribbean shipping company (Com-
pania Nariera Mullinacional del Caribe,
.S.A.-Namucar). Each country contributed
$500,000 initially, and pledged up to
$3,750,000 by 1979. Namucar was set up to
transport -bulk cargo and merchandise be-
tween regional ports, to increase intraregional
trade, and to decrease dependence on for-
eign-owned maritime transport. It is still a
very small operation, but contrary to all
expectations, it began to operate in the black
after only four voyages and a few months of
operation,
? A loan of $5 million at 12 percent annual
interest plus a 2 percent service charge to
Trinidad and Tobago, Barbados, and Grenada
to purchase the Leeward Islands Air Trans-
port System (LIAT), the Eastern Caribbean
regional short-haul interisland airline, which
faced bankruptcy. At the time, October
1974, there seemed a fair chance that the
investment would never be repaid, and it was
regarded as a purely political and influence-.
building gesture. In October 1975, however,
the Venezuelan loan was repaid by a $5.5
million longer term loan from the Caribbean
Development Bank.
? A coffee retention plan to support the
world price of Central American coffee, in
cooperation with Mexico and Colombia. Ven-
ezuela agreed to finance up to $80 million
for up to 50 percent of the value of the. crop
retained. the f-inan-
cing was to be strictly s sort term-six months
to a year-at the end of which time the
Central Americans were expected to have
established a corporation of their own for the
financing. The plan was never realized, how-
ever, because a subsequent rise in the world
price for coffee eliminated the need for
stockpiling.
Interest in the Andean Pact also increased for
a while, but produced far less visible progress.
The Pact was set up in a period of high hopes in
1969 among Chile, Bolivia, Peru, Ecuador, and
CONFIDENTIAL
Colombia to stimulate a regional market and to
serve as a counterweight to Brazil, but accom-
plished little. Venezuela joined in 1973 under
Caldera, but labor and business opinion have
remained cool toward the arrangement because
it places reciprocal demands on the member
countries, and businessmen in Venezuela expect
that with the proposed elimination of intra-
regional tariffs the other members would be a
drag on Venezuelan development., Recently,
the Pact has suffered from Chile's withdrawal.
Nevertheless, as mentioned, the FIV contrib-
uted $60 million to the Pact.
By July 1975, the FIV through these and
other projects had reportedly paid out $245
million and had received repayments, "strictly
on schedule," of $13 million. These investments
will provide a continuing return for 25 to 30
years, and in this sense could form part of a
coherent development policy to serve domestic
political and economic ends, but in reality the
funds involved are insignificant in the face of
Venezuela's future needs.
Besides orchestrating these predominantly
economic activities, Perez and other Venezuelan
officials have assumed an active public role in
promoting regional integration and supporting
Third World demands for a new international
economic order. I
_
GIB
Perhaps the most far-reaching concrete
pression of a new push for economic region-
alism in the 1970s was the creation of SELA in
October 1975. The concept of such an organiza-
tion to include all Latin American countries,
but, unlike the OAS, to exclude the United
States, had been actively promoted by Mexico's
4Production rights in certain basic industrial sectors are to be
allocated among the member countries in a way which equalizes
the benefits of integration. These Sectoral Programs for
Industrial Development (SPID) attempt to create one viable
subregional market out of numerous small ones through
planning and complementary development, but established
interests invariably oppose any loss of markets. For example, an
overall development plan for the automotive industry within
the Pact was proposed which would have lowered Venezuela's
share of the market and reduced her profits; renegotiation of
the terms is still in progress.
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
CONFIDENTIAL
minister of mines and hydrocarbons. Although
retired since 1963, he continues to make public
statements and to write editorials on foreign
policies, especially oil-related policies, which
invariabl receive wide press coverage and com-
25X1 ment.b
Although President Perez inherited the policy
of regional involvement from his predecessors,
he has become identified with it to an excep-
tional degree. Most of the populace takes pride
in Venezuela's new international stature, and
Perez is a popular figure. There are those,
however, who complain that any funds diverted
to external programs could be better used at
home and that domestic development programs
should take priority over foreign policy ges-
25X1 tures.
Funding and Possible Conflicts
The OPEC price boom came at a fortunate,
yet ironic, time for Venezuela, whose oil
production peaked in the 1970s. For decades
Venezuela was the world's largest exporter of
oil, but today it is third, after Saudi Arabia and
Iran, and slipping. Other OPEC members such
as Iraq and Kuwait will probably move ahead of
Venezuela within a few years, but more signif-
icantly, Venezuelan production is expected to
decrease over the next decade, perhaps even
25X1 precipitiously in the next few years.
The oil fields which have been exploited for
over half a century are beginning to run dry,
and Venezuela has sharply reduced oil produc-
tion in recent years to conserve its dwindling
reserves. From an average level of 3.4 million
barrels per day (b/d) from 1971 through 1973,
1975 production averaged 3.0 million b/d and
1976 production averaged onl 2.3 million b/d.
25X1 There is almost certainly more oil o e
found and developed in Venezuela, but very
little exploration was carried on in the 1960s
6After he retired from the Ministry of Mines and Hydrocarbons,
Perez Alfonzo began to consider Venezuela's oil a hindrance to
its development, stating that Venezuelans would remain lazy
until the oil ran out. Despite all the efforts and development
plans, there may be some truth to this. It is the analogue, from
the export side, of the industrialized countries' dependence on
oil and their failure to develop alternative sources of energy.
Volume of Petroleum Production
and Exports
1971
573251 6-77
and early 1970s because the petroleum industry
had no incentive; it was scheduled for nationali-
zation in the 1980s and no concessions were
granted after 1959. Venezuelan officials today
point to promising geological structures in the
Gulf of Venezuela and on the continental shelf,
but admit that the process of exploration and
development will take years even if luck is with
them and the oil is there.
One known resource is the largely undevel-
'oped Orinoco Tar Belt (or as it is officially
euphemized, the Orinoco Petroliferous Belt).
The petroleum reserves there are estimated at
700 billion barrels, and if only 10 percent of
this were recoverable, it would equal five times
the present reserves. The area is isolated from
all transportation, however, and the quality of
the oil is so poor that the technology does not
now exist to extract usable oil economically
unless another significant price rise occurs.
The latest analyses of the world energy
situation project a relatively stable world price
for oil through 1980, with the prospect of sharp
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
1976 trip, he addressed the UN General Assem
bly in New York and the international congress
of Social Democrats in Geneva. At the UN he
said:
Venezuela is actively and firmly commit-
ted to the Third World at all forums where
the new international economic order is
discussed and is already being constructed.
T rorn the recent special UN assemblies to
UNCTAD forums and now through the
honor of sharing the chairmanship at the
;Vorth-Sout/r talks, we have joined the rest
of Latin America in the Manila agreements
which set forth a responsible, organic
concept of the Third World-the Group of
77--and of what the new international
economic order should be.
All this recent activity has been received by
Venezuela's neighbors with few expressions of
concern. Most see no conflict between Vene-
zuelan influence in the area and their own
economic and political interests. Only a few of
Venezuela's neighbors have responded with
suspicion, like Trinidad's Eric Williams, who
charged Venezuela with "recolonization of the
Caribbean." Most, like Kjcll Laugerud of Guate-
mala and Anastasio Somoza of Nicaragua, have
been quite receptive and simply accept the
economic realities of the situation with mild
regret; a leading Dominican economist stated
that "1974 probably represents the close of a
period that began in 1961, of great dependence
of our country on the United States, and
unfortunately the beginning of another period
of economic dependence on Venezuela and
other nearby oil producers."
Personalities and Personnel
Much of the drive for all of these activities
has come directly from President Perez, who is
following in a Venezuelan tradition of strong
personalistic leadership. Although the AD party
benefits from his foreign policy successes and
the people in general are proud of Venezuela's
more important role on the world stage, very
few other groups or individuals play an effective
role in the formulation of foreign policy. In the
Venezuelan political system, the various minis-
tries and special institutes directly involved in
the execution of foreign policy have had very
little say in its formulation.
An emergency measure passed in 1974 dele-
gated extraordinary powers for one year to the
president to carry out special economic matters,
and during that time his administration often
took the form of executive orders, or decrees.
This official license and the continuing defer-
ence paid to traditionally strong presidential
power give him the freedom to announce
programs of aid or development apparently
without prior consultation. The FIV was cre-
ated by an executive decree, and over the next
year or so Perez seemed to announce a new
program in every speech, especially when ad-
dressing foreign audiences or visitors. Some of
these seem to have caught his own government
by surprise, which may explain the frequent
confusion caused by his statements and the
delay preceding official implementation. For
example, his announcement to the UN General
Assembly that Venezuela was cutting its trade
with South Africa was completely unexpected
and uncoordinated.
Venezuela has many well-trained and experi-
enced individuals in the petroleum industry, but
most of them and the several thousand students
who go abroad every year to study petroleum
technology are technical experts only. Vene-
zuela's pool of trained and experienced diplo-
matic personnel
qualified individuals exis
The Foreign Ministry especially, under Escovar
Salom, is generally undistinguished and disorga-
nized. Aside from President Perez, the most
well-known public voice is Juan Pablo Perez
Alfonzo, the architect of OPEC and former
25X1
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
increases after that. Thus although Venezuela
will benefit from the tightening energy situation
in the 1980s, in the next few years it is likely
that Venezuela's oil revenues will continue to
level off, or even possibly to fall. This means
that it will become increasingly difficult for
Venezuela simultaneously to finance its ex-
tremely ambitious domestic development pro-
grams-especially the imports of machinery and
technology necessary to support them-and to
make large new foreign economic assistance
commitments.
The development program, as contained in
the 1976-80 five-year plan (V Plan of the
Nation) calls for major investments to develop
the nation's oil resources (especially on the
continental shelf and in the Orinoco Basin) as
well as to develop infrastructure and to diver-
sify the economy away from its heavy depen-
dence upon oil. Specific priorities include a
metro system, the mining and steel industries,
electrical development, highways, ports, air-
ports, waterworks, sewage plants, and agricul-
ture.
The plan is designed to transform not only
the economy but also the social structure by
1980 by spreading economic gains more equita-
bly among the populace. It entails heavy state
intervention in "strategic" areas, leaving agricul-
ture, small and medium industry, transporta-
tion, construction, finance, and trade to private
investors. The plan calls for an investment of
nearly $51 billion ($27 billion from the govern-
ment and $24 billion from private enterprise).
Success is to be measured not only by growth in
national income but also by improvements in
social indicators, including unemployment and
levels of nutrition, education, housing, and
health care.
It is unlikely that many of the plan's goals
will be met. Despite well-publicized efforts to
diversify the economy and to develop heavy
industry, modern infrastructure, and social and
agricultural programs, the economy is at least as
dependent on oil as it was before these efforts.
For one thing, Venezuela's record with nation-
alized industries has been uneven. The govern-
ment had hoped that domestic development
would by now have created other export
industries, such as the steel industry and the
petrochemical industry, which are largely state
owned. The former is still years away from
being a significant source of export revenues,
however, and the latter has been badly man-
aged. In addition, the plan may cost far more
than projected. The bill for imports and other
Projected Imports,
Current Account Balance, and
Foreign Reserves
Billion US $
1974 75 76 77 78 79 80
Projected
current expenses has risen steeply since 1973,
reaching approximately $7 billion in 1976, and,
although Venezuela held $8 billion worth of
international reserves at the end of 1976 (the
highest in Latin America), its current account
surplus has begun to decline rapidly. As the
CONFIDENTIAL 13
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
1976
1974
1975
Estimate
Export earnings, (f.o.b.)
11.1
8.7
8.8
OR export earnings
10.1
8.2
8.4
Imports, (f.o.b.)
3.9
5.5
6.5
Current account balance
6.4
2.4
1.2
surplus disappears, the need for foreign bor-
rowing to finance development programs will
increase. In anticipation of this, a "public
credit" law was passed in August 1976 to
permit borrowing up to $7.2 billion (2.8 from
the FIV and 4.4 from abroad) to help finance
the V Plan.
In September 1976 a $ 1 billion loan was
negotiated from a consortium of international
banks, ostensibly to consolidate short-term obli-
gations but also to establish credit and take the
first step in the development of a prudent,
long-range planned debt program. Venezuela
currently has no trouble borrowing on the
world market, due to its oil export potential
and its large foreign reserves, but, in anticipa-
tion of heavy future borrowing, it is moving to
create an excellent debt record to sustain its
credit rating as its oil reserves are depleted. In
February 1977, a $ 100 million bond issue was
offered and sold on the Eurobond market to
help in the V Plan, and in March another major
loan to finance the development plan was
arranged through a group of I I I banks. The
latter, for $1.2 billion, is reportedly the biggest
single loan even made to a developing country.
Implications
Venezuela's dynamic foreign policy has been
closely linked to extremely high oil revenues,
but from now through 1980 the popular and
political pressure for conservation and domestic
development will probably prevent large new
regional economic assistance programs. This will
be a period of some retrenchment, for without
excess oil revenue to dispose of, there are few
ways in which Venezuela could conduct an
active and effective foreign policy: it has
relatively few close cultural and historical ties
to the other countries in the region; it has failed
to establish a sound industrial base for new
export-led growth; its military is essentially a
domestic defense fore
The regional agreements of the past four
years have provided experience and interna-
tional connections for a few individuals, espe-
cially in the Foreign Trade Institute, the Minis-
try of Energy and Mines, and the Ministry of
international Economic Affairs, but their per-
sonal and political influence is limited. The only
area in which Venezuela has developed a base of
human and institutional expertise is in the
petroleum industry, and this is largely irrelevant
to the conduct of foreign affairs except for
certain bilateral agreements under which Vene-
zuela has arranged to help other countries
develop refinery capacity. The military limits its
interest in foreign policy to Venezuela's unre-
solved border disputes with Colombia and
Guyana, which present a remote possibility for
conflict, but it is unlikely that military pressure
would be brought to bear on any of Venezuela's
other neighbors.
Although the populace enjoys the country's
increased stature on the world stage, pressure to
spend less money abroad and more at home is
increasing. The national elections scheduled for
December 1978 will surely sharpen the issue,
and extensive new foreign assistance programs
will probably become too controversial for
either the AD candidate (Luis Pinerua Ordaz) or
the COPEI candidate to support. Venezuelan
activities in the next few years will be in-
fluenced_by_n1wy -factors, however, and an
un-expccted_oil price increase or the election of
a new_ president who also relishes a dynamic
forc gn policy role-Perez may not succeed
himself-could sustain Venezuela's activities.
After 1980, it is possible that world demand
will cause the price of oil to rise significantly, as
it did in 1973-74. Although that period is
beyond the scope of this paper, Venezuelan
expectations of their prospects in the 1980s will
clearly influence decisions in the next few
years. If the Venezuelan leaders and people
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
foresee an upturn in the fortunes of oil (as has
happened so often in the. past), they will view
the present tightening situation__as temporary
and will expect to continue their influential role
in the future.
For the present, regional and international
activities will probably be initiated only if they
do not divert funds from domestic priorities.
Nevertheless, Venezuelans will continue to sup-
port an active foreign policy, for they take
pride in their position of Latin American and
Third World leadership. Much has been accom-
plished in the past three years to raise expecta-
tions and to increase the sense of national pride
and well-being. The iron ore and petroleum
industries were nationalized, the Venezuelan
25XI
Methods and Forecasting Division, Office of
Regional and Political' Analysis. Comments and
queries are welcomer 7
president made well-publicized state visits
worldwide, and Venezuela became a recognized
spokesman for many Third World aspirations.
Just as important, Venezuelans take great pride
in their democratic tradition. Venezuela and
Colombia are currently the only two democrati-
cally elected regimes in South America, and
since the days of Betancourt, Venezuela has
worked to promote democracy in the region.
All of ts suggests that Perez (through the
end of his term in 1979) and his successor (into
the early 1980s) will seek activities which
maintain Venezuela's high visibility and rhetori-
cal position of leadership, such as Perez' recent
trips, but until the price of oil soars again will
try to avoid large new assistance programs.
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Confidential
Confidential
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
 Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6
Next 13 Page(s) In Document Exempt
Approved For Release 2006/01/30 : CIA-RDP79B00457A000400030001-6