October 13, 2008

Oil Countries’ Social Aid Programs May Take Hit

By Chris Hawley

MEXICO CITY -- Fernando Garcia was going blind in his left eye. After years on a waiting list for an operation at a Mexican hospital, Venezuelan President Hugo Chavez came to the rescue.

The Venezuelan government paid for Garcia's flight to Caracas and cataract surgery that restored his sight.

"There's not enough money in the world to repay Venezuela for what they did for me," Garcia says.

And that may be exactly the problem.

Helping people such as Garcia is part of Chavez's strategy of converting high oil prices into billions of dollars spent on aid programs to win new allies throughout Latin America -- and to diminish the power of his avowed archenemy, the Bush administration.

Venezuela, the world's No. 7 exporter of crude, even extends its largess to the USA, where Venezuelan-owned Citgo has given 105 million gallons of heating oil to Indian reservations, homeless shelters and needy families since 2005.

Now, oil prices are down more than 40% from their July peak, and analysts are wondering how long Venezuela and regimes in other oil-exporting countries, such as Iran and Russia, can keep up the generosity.

Venezuelan Finance Minister Ali Rodriguez warned last week that there will be "significant restrictions" next year.

"Clearly, it's going to affect how much extra money they have on hand," says Rodrigo Salazar, a professor at the Latin America Faculty of Social Sciences in Mexico City. In Venezuela, "the first thing to be sacrificed would be these programs abroad," he says.

Lower oil prices could definitely erode the stature of oil-exporting nations, says David Victor, an energy specialist at the Council on Foreign Relations.

"The overall effect of this will be to amplify fundamental weaknesses in countries that depend on oil," he says. "That will affect some of our allies, and it will affect some of our adversaries."

The oil windfall allowed Venezuela's economy to grow between 8% and 18% annually since 2003, even as the Chavez government took steps that would normally scare away investors.

Chavez declared Venezuela a socialist state, seized control of private oil projects and nationalized businesses ranging from the CANTV phone company to an H.J. Heinz tomato-processing plant.

Of all U.S. antagonists, Chavez is the most dependent on oil for his political power, Victor says. Chavez uses the oil bonanza to fund projects from medical clinics to subsidized food stores, community orchestras to low-cost housing.

Venezuela, a member of the Organization of Petroleum Exporting Countries and the world's 10th-largest producer, also sells oil at below-market prices to left-leaning allies in South America and the Caribbean.

The nation of more than 26 million people is a major lender to Argentina and helps communist Cuba with about $2 billion annually in aid.

Programs such as the "Miracle Mission" surgery trips sow goodwill. Mexican taxi driver Ernesto Gualito was unable to work for two years because a cataract had turned the vision in his left eye into a cloud of white.

Last year, he was one of 80 patients from the Tlalpan borough of Mexico City to receive government-paid surgery in Caracas.

The hospital greeted them with a sign saying "Welcome, Mexicans!" The Venezuela government supplied them with clothes, pajamas, toothbrushes and even sunglasses to protect their eyes on the trip home.

"I wish our own presidents cared as much as" Chavez, says Gualito, who now drives a cab again.

Other countries are flush with petrodollars from recent years. In Ecuador, another OPEC state, leftist President Rafael Correa counts on oil revenue to fund his programs for the poor. He recently threatened to expel foreign oil companies if they don't increase production.

In Iran, President Mahmoud Ahmadinejad more than tripled food subsidies to $5.85 billion in 2007, from $1.67 billion in 2004, according to the International Monetary Fund.

Iran also sends money to Hezbollah in Lebanon and Hamas in the Palestinian territories -- two groups the United States regards as terrorists.

Russia, meanwhile, used oil profits to pay most debts from its 1998 financial crisis, plus save a nest egg of $580 billion. Russia also increased its foreign aid to $215 million in 2007, from $50million in 2004, foreign ministry official Mikhail Savostiyanov said in March.

Lower oil prices might make some countries less receptive to Chavez's anti-American rhetoric, says Adalberto Santana, a Latin American studies professor at the National Autonomous University of Mexico. Low prices could also mean serious budget cuts.

"The fall in the price of petroleum obviously affects the resources available for (social) programs," he says. "But it's difficult to hurt a Hugo Chavez, because there is still a great need for those fuels."

Hawley is Latin America correspondent for USA TODAY and The Arizona Republic (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc. <>