Four Things You Need to Know about Venezuela

Amid the many depredations of Hugo Chávez, it is easy to forget that Venezuela has turned into the most violent country in South America, and that Caracas has become a global murder capital. According to the independent Venezuelan Observatory of Violence, the annual number of homicides nationwide grew from 5,974 in 1999 (when Chávez took power) to 17,600 in 2010. Venezuela today is a haven for international terrorist groups (including the Colombian FARC, the Iranian-backed Hezbollah, and the Spanish ETA), and it is also a veritable gangster’s paradise of narco-trafficking, kidnapping, and armed robbery, with brutal crime syndicates running drugs, transforming prisons into battlefields, and driving up the body count. The recent kidnapping and rescue of Major League Baseball star Wilson Ramos highlighted these problems in spectacular fashion, thereby drawing global attention to a frequently overlooked aspect of the Chávez legacy.

Indeed, to truly appreciate what the Bolivarian socialist has done to a once-prosperous country awash in oil, we must go beyond his vitriolic anti-U.S. rants, his attacks on democracy, and his disastrous economic policies. Here are four things you must know to understand (a) how the Chávez regime has survived this long and (b) where Venezuela might be headed:

(1). The regime is financially dependent on China.

The combination of a ruined private economy and profligate government spending has utterly wrecked Venezuelan public finances. While the country still collects sizable oil revenues, Chávez has badly mismanaged Petróleos de Venezuela (PDVSA), the state-owned energy giant, which is slowly crumbling. “Hugo Chávez is putting on a clinic,” energy expert Robert Rapier wrote last year. “The theme is ‘How to Destroy a Domestic Oil Industry.’” Thanks to his calamitous oil policies and fiscal recklessness, Chávez needs generous outside support to continue funding his expensive social programs. In other words, he needs a foreign sugar daddy.

Enter China, which has been pouring money into the Venezuelan oil sector. Moreover, under various “oil for credit” deals signed with Beijing, Chávez has secured a whopping $32 billion of low-interest Chinese loans. According to a Wall Street Journal report last week, the Chinese government had loaned Venezuela $20.8 billion through mid-April, and daily Venezuelan oil shipments to China under the agreements now total roughly 400,000 barrels. “This is a win-win for China and the Chávez government, but not for Venezuela or PDVSA,” former PDVSA board member Pedro Burelli told the Journal. Earlier this year, BCP Securities analyst Walter Molano estimated that the oil-for-credit deals were causing Venezuela to lose “almost half of the oil revenue that was being generated to service its external debt obligations.” But as far as Chávez is concerned, the Chinese loans are enabling him to shower his constituents with politically popular goodies in advance of the 2012 Venezuelan presidential election. As the Journal put it, he is using the loans to fund projects “that are likely to help him at the ballot box.”