The Washington Diplomat / September 2010
By Larry Luxner
At the entrance to the glitzy Hilton Cartagena — a business hotel fronting Colombia’s Caribbean coast — a colorful map painted onto an enormous blue heart-shaped sculpture depicts Colombia’s place in South America, with the boastful tagline: “Foreign Direct Investment in Six Years has Grown by 400%.”
Not far away, in Cartagena’s colonial zone, another giant heart — this one yellow — sports a quote from former Citibank executive Franco Moccia: “Colombia’s most important strength is its human capital. There is an excellent entrepreneurial spirit here that is not very common in Latin America.”
Those ubiquitous messages, found throughout Colombia in both English and Spanish, reflect a booming economy that’s likely to grow by more than 5 percent this year. Some observers say Colombia’s gross domestic product could even expand by 6 percent.
It’s the opposite story in Venezuela, where state-sponsored billboards ridicule “capitalist exploitation” and Citibank officials keep their opinions to themselves for fear of offending President Hugo Chávez, who not long ago threatened to nationalize the country’s banking system.
Despite its vast energy wealth — oil and gas generate about 80 percent of the country’s export revenues — Venezuela’s GDP will plummet by at least 2.6 percent in 2010, predicts the IMF. That’ll make it the Western Hemisphere’s only country (except for quake-ravaged Haiti) to suffer economic decline this year.
In early August, Fitch Ratings assigned a long-term foreign currency rating of B+ to the Chávez government’s latest $3 billion bond issue. Explaining the less-than-stellar grade, Fitch criticized Venezuela’s “increased state intervention in the economy” and warned investors that high inflation, continuing recession and “continued transfers of international reserves to opaque government-managed funds has weakened the sovereign’s net external position in spite of its status as an oil exporter.”
Larry Birns, director of the Washington-based Council on Hemispheric Affairs, put it succinctly.
“It’s not that Colombia is doing so wonderfully, it’s that Venezuela is doing so badly — especially when you have annual inflation nearing 30 percent,” he explained. “Chávez has uncorked a lot of bottles, and lots of genies are floating around. Some of them could pose a mortal threat to the survival of his revolution.”
In late July, Venezuela (population 28 million) broke diplomatic relations with Colombia (population 45 million) after Colombian President Alvaro Uribe, in the waning days of his presidency, accused his longtime nemesis Chávez of harboring 1,500 Marxist guerrillas in the forests of southeastern Venezuela.
Those relations were tenuously restored after Chávez met with Uribe’s successor, Juan Manuel Santos, at the Colombian beach resort of Santa Marta. That meeting followed by only three days the new president’s Aug. 8 inauguration in Bogotá’s Bolivar Square, at a ceremony attended by 5,000 invited guests including Presidents Luiz Inácio Lula da Silva of Brazil, Felipe Calderón of Mexico and Cristina Fernández de Kirchner of Argentina (Chávez was a no-show).
“We are starting this relationship from zero in a frank and sincere way,” Santos told reporters in a news conference with Chávez at his side. “The two countries will re-establish diplomatic relations and create a roadmap so that all aspects of relations can progress, advance and deepen.”
Yet the ongoing bitterness between Colombia and Venezuela has cost both economies dearly.
Trade has fallen 70 percent from $2.26 billion in the first five months of 2009 to only $652 million for the same period in 2010, reports Colombia’s statistics agency. Total Colombian exports to Venezuela this year will barely reach $1.5 billion — implying a loss of some 350,000 jobs on the Colombian side of the 1,200-mile border shared by both countries.
“Under Venezuela’s promotion, commerce between the two countries rose to historic highs — over $6 billion a year,” according to a Venezuelan Embassy press release. “Venezuela dedicated resources to addressing the needs of Colombian refugees that crossed the border, and President Chávez even moved ahead with building a gas pipeline from Venezuela into Colombia over what was once disputed territory.”
While the two countries have definitely taken a welcome step back from the precipice of war, Uribe reportedly is furious with the new president’s conciliatory gestures toward Chávez. The Bogotá news magazine Semana suggested on its website that “the hypersensibility of the outgoing president and the independence of the incoming” leader has led to hostility between the two, with Uribe worried that his one-time defense minister would now make the old government seem “warmongering and conflictive” in retrospect.
One good piece of news to come out of the Santos-Chávez meeting: Venezuela now promises to pay debts to Colombian exporters dating from July 2009, when Chávez first froze bilateral trade. The Venezuela-Colombia Chamber for Economic Integration, a Caracas-based business group, told Bloomberg that Venezuela owes its neighbor around $800 million.
In fact, Birns says the bilateral spat has cost Colombia far more than it has gained from the U.S. government’s Plan Colombia — a controversial anti-narcotics program that has drained U.S. taxpayers of over $7 billion in the last 10 years.
Typically sympathetic to left-leaning causes, COHA says Colombia has one of the most unequal patterns of income distribution in Latin America, and that the United States has militarized Colombian society unnecessarily. Yet the think tank has lately been critical of the Chávez government as well, with Birns calling Venezuela’s provocative populist leader a foreign-policy president, not a domestic president.
“He’s one of the most traveled heads of state in Latin American history and a man of vision — but he’s making the classic mistake of not staying home and tending to his revolution,” Birns told The Diplomat. “He has failed in implementing that vision.”
Colombia’s longtime ambassador to the United States, Carolina Barco, is on her way out and could not be reached for comment. Her replacement is Washington veteran Gabriel Silva, who served as Bogotá’s top envoy here in the early 1990s and was most recently Uribe’s minister of defense. “I believe that my appointment is a clear signal that security and defense issues in bilateral relations with the United States are still very important,” Silva told Colombia’s Radio Caracol, adding vaguely that “regional issues are part of the conversations” he’ll have with officials in Washington. Meanwhile, Bernardo Alvarez, Venezuela’s ambassador to the United States, angrily denies Uribe’s accusation that Venezuela harbors Colombian Revolutionary Armed Forces (FARC) guerrillas. In an article in Foreign Policy, Alvarez suggests that Uribe, as a final parting shot, made those “laughable charges” to discredit Venezuela and boost Colombia’s chances at getting Washington to approve a controversial free-trade agreement with Bogotá which was signed by both countries in 2006.
“In recent months, President Obama indicated that he would submit a long-stalled FTA with Colombia to the Senate for consideration. As George W. Bush proved, there’s no better way to sell something to Congress than by stoking fear,” Alvarez wrote.
“That’s exactly how Bush pushed through the Central American Free Trade Agreement in 2005, by arguing that Venezuela was a regional threat. Now, the Obama administration may be doing the same. Colombia’s newest claims also conveniently serve to distract from concerns about the country’s human rights record, which have been a factor in the stalling of the FTA.”
On that score, Alvarez has little to worry about for the time being.
Michael Shifter, president of the Inter-American Dialogue, sees absolutely no chance a U.S.-Colombia FTA will pass this year. For one thing, the U.S. unemployment rate is 9.5 percent and congressional Democrats are in no mood to upset voters; secondly, Colombia is looking to other trading partners in Latin America, Europe and the Far East.
“My sense is that Colombia is moving on. It’s been spending too much energy trying to get this FTA passed, and it’s been very frustrating for them. It’s also alienated some of their Latin American neighbors, who see Colombia as doing Washington’s bidding,” said Shifter, an expert on Andean affairs.
“In 2011, it may be possible, especially if Santos carries out some of his promises and deals with human rights issues and Colombia’s image in Washington improves tremendously. But it all depends on the U.S. economy. I doubt Colombia will be sending delegations to Washington anytime soon to lobby Capitol Hill to adopt the FTA.”
Even without the boost an FTA would give Colombia, its economy already outperforms Venezuela’s by every measure available. That’s a switch from the ‘80s and early ‘90s, when Colombia was ravaged by drug cartels and millions of colombianos sought the relative safety of Venezuela.
The irony is that these days, Bogotá is infinitely less violent than crime-ridden Caracas. Kidnappings have fallen by 88 percent and the homicide rate has been halved in the last decade under Uribe’s strong-arm tactics, which earned him the admiration of millions of Colombians.
Meanwhile, the country has been a veritable magnet for foreign investors. Earlier this year, Cartagena hosted the World Economic Forum on Latin America 2010 — a prestigious gathering that attracted 550 top executives from 40 nations, as well as Uribe himself and the leaders of Guatemala, Panama and the Dominican Republic.
Shifter says Venezuela and Colombia “have dramatically different models of governance,” and economic policy is a consequence of that.
“You cannot have an effective economic policy if there’s only one person making all the decisions. In Venezuela’s case, that’s what you have: somebody who’s driven by political power,” he said. “Institutions serve his agenda, and there’s no sense of independence. Chávez is doing this because he wants to stay in power and win the elections.”
Howard Glicken, chairman of the Americas Group, a Miami-based consulting and merchant banking firm, says the difference between the two Andean neighbors boils down to national culture.
“I think the Colombians are far better technocrats and managers of their affairs than the Venezuelans,” he said. “The Colombian leadership is far better prepared and more professional than the team Chávez has assembled.”
In this year’s legislative elections, set for Sept. 26, voters will select 165 deputies to the National Assembly, along with 12 deputies to the Latin American Parliament. Winners will take office Jan. 5, 2011, and serve for five-year terms.
Yet Chávez is clearly in trouble — a consequence of skyrocketing crime rates and chronic shortages of water and electricity. For the first time, Venezuela’s fragmented opposition movement stands a chance of breaking the chavista hold on political power.
One of Venezuela’s biggest problems is declining crude oil production at Petróleos de Venezuela SA, the state-owned petroleum conglomerate. The country has an estimated 78 billion barrels of proven conventional crude oil reserves, and another 235 billion barrels of extra-heavy crude in the Orinoco Belt.
Currently the world’s third-largest oil company after Saudi Aramco and ExxonMobil, PDVSA has transferred billions of dollars to Fonden, the investment fund experts say finances Chávez’s enormous social projects.
“Increased oil revenues have given Chávez the ability to extend assistance programs outside Venezuela’s borders,” says the Council on Foreign Relations in a recent report. “For example, he provides oil at a preferential price to many countries in the Caribbean through the Petrocaribe initiative.”
But production has fallen from 3.2 million barrels a day in 2005 to around 2.4 million barrels a day, according to OPEC, the U.S. government and the International Energy Agency, put a serious dent into the socialist Chávez agenda.
“PDVSA used to be a very effective, well-run state enterprise. It no longer is,” Shifter said. “People can argue about the levels, but production levels have gone down considerably. This has been pretty well established. This is why he continues to devalue the bolivar and that’s why he’s taking over investment companies. He can arbitrarily decide to confiscate companies and seize their assets.”
Quite the opposite is taking place in Colombia — the only country in Latin America that didn’t suffer the debt crisis of the 1980s.
“U.S. investors view Colombia very favorably, especially now with Santos,” said Shifter. “He has a very solid cabinet and an impressive economic team. They liked Uribe, but because he was a one-man show, that was a source of concern.”
Glicken, who’s been doing business in both countries since 1971, says the 58-year-old Santos “is an extraordinarily capable guy who will have a less negative attitude toward human-rights issues than Uribe, because he has a more balanced approach to the problems.”