12 Mar 1974 - 12 Mar 1979 - Carlos Andrés Pérez Rodríguez

The December 1973 election was a truly pluralistic affair. The twelve presidential candidates ranged from three aspirants of the parties on the left to an even larger number of self-declared representatives of former president Pérez on the right. The MEP, which had moved steadily leftward since 1968, allied itself with the PCV and nominated Paz under the banner of Popular Unity (Unidad Popular), modeled after the Chilean left-wing coalition of the same name that had elected Salvador Allende Gossens in 1970. The URD initially joined the coalition, but the aging Jóvito Villalba later withdrew his party to launch his own candidacy. The other candidate on the left was José Vicente Rangel of the Movement Toward Socialism (Movimiento al Socialismo--MAS), a party that had been founded in 1971 by a group of PCV dissidents with liberal, "Eurocommunist" notions of a modern, election-oriented party. Unlike the Moscow-line PCV, the MAS had little bond to the Soviet Union.

Although the 1973 election was notable for the ideological pluralism represented in the competing political parties, its most important distinction was the primacy achieved by the two principal parties, AD and COPEI. In contrast to 1968, the social democratic Acción Democrática (AD Democratic Action Party) converged around the figure of Betancourt's long-time protégé and minister of interior, Carlos Andrés Pérez, thus passing party leadership to its second generation. Campaigning deep into the rural Venezuelan heartland as well as in the ranchos of all major cities, Pérez managed to recapture much of the populist appeal acquired by Betancourt thirty years previously. The campaign of his opponent, Lorenzo Fernández (also a former minister of interior) was, by comparison, a low-key affair.

On election day an astounding 97 percent of the registered voters went to the polls. Pérez, with 48.8 percent of the valid vote, prevailed against Fernández's 36.7 percent. Between them, then, AD and COPEI captured nearly 86 percent of the valid presidential vote; the two parties also garnered 43 of the 49 Senate seats and 166 of 200 seats in the Chamber of Deputies. AD attained absolute majorities in both congressional houses as well as in 157 of the nation's 181 municipal councils. The showing of leftist parties, in contrast, was unimpressive: the Popular Unity coalition gained 5.1 percent; MAS, 4.2 percent; and the URD, a mere 3.1 percent. "Polarization" was the term used locally to describe the apparent transition of Venezuela's electoral contests into two-party affairs. It was yet another promising sign in the evolution of a stable system of democracy.

Venezuela had still another reason to be euphoric at the dawn of 1974. The October 1973 Arab-Israeli War had triggered a quadrupling of crude oil prices in a period of only two months. When Pérez assumed the presidency in February 1974, he was immediately faced with the seemingly enviable task of managing a windfall of unprecedented proportions. To combat the inflationary pressures that would result from the sudden addition of some US$6 billion in annual government revenues, Pérez set up the Venezuelan Investment Fund (Fondo de Inversiones de Venezuela-- FIV), with the objective of exporting 35 percent of this unexpected income as loans to Caribbean, Central American, and Andean neighbors. The greatest portion of this aid money went to the oil-importing nations of Central America in the form of long- term loans to pay for half of their oil-import bills. Venezuela also loaned out its "excess capital" through various multilateral lending institutions, including the Inter-American Development Bank (IDB).

The FIV loan program engendered considerable international goodwill on behalf of Venezuela, particularly among the recipient countries. Building on that prestige, Pérez and Mexican president Luis Echeverría Alvarez (1970-76) founded the Latin American Economic System (Sistema Económico Latinoamericano--SELA). SELA, with headquarters in Caracas, had twenty-three Latin American nations as its initial members in 1975. It was formed to promote Latin American cooperation in international economic matters such as commodity prices, scientific and technological exchange, and multinational enterprises and development projects. SELA, it was hoped, would help create the building blocks of a "new international economic order," in which the developing nations of the southern hemisphere would challenge the economic hegemony of the developed nations of the north.

Pérez's aggressive stance on behalf of the Third World helped to cool Venezuela's traditionally warm relations with the United States. Other contributing factors to this change included Venezuela's displeasure with both the revelations of extensive covert intervention by the United States against the Allende government in Chile and the reluctance of the United States to begin negotiations with Panama over future control of the Panama Canal. The major irritant, however, was OPEC's petroleum policy, marked by OPEC's 1973 price increases, and the embargo on oil shipments to the United States instigated by the Arab members of OPEC during the October War. Despite the fact that Venezuela had increased its oil shipments at that time in order to meet United States needs, the United States retaliated against the embargo by excluding Venezuela, along with the other OPEC-member nations, from the 1974 Trade Act, which created the Generalized System of Trade Preferences to lower tariffs on designated imports from developing nations. Proud of never having denied the nation's oil to the United States, even during periods of war and political tensions, Venezuelans took offense at what they saw as unwarranted punitive action by the United States.

At home, President Pérez put aside his promised intention to "manage abundance with the mentality of scarcity," and embarked on a spending spree designed to distribute Venezuela's oil wealth among the citizenry. Price controls that subsidized the public consumption of food and other commodities were introduced. Government-authorized wage increases, combined with foreign exchange controls that subsidized imports, led to periodic buying binges of Japanese stereos and televisions, German automobiles and cameras, and clothing and processed foods from the United States. Per capita consumption of Scotch whiskey soared to a level among the world's highest. Government subsidies assumed a variety of other forms as well: in 1974, US$350 million in debts owed to state agencies by the Venezuelan farming community were simply cancelled.

The Pérez administration initiated various other programs to spur employment. The 1974 Law of Unjustified Dismissals made it very difficult for employers to fire workers and mandated ample severance payments to those who did lose their jobs. Public employment doubled in five years, reaching 750,000 by 1978. Although unemployment levels thus dropped precipitously, Venezuelans' traditional disdain for hard work increased, leaving many necessary jobs either unfilled or filled by a growing number of indocumentadosas (undocumented or illegal aliens) from Colombia and Brazil. Although these subsidy and employment programs theoretically sought to improve the lot of the poor, in fact, the actual outcome was that a significant portion of the population continued to live in a state of misery. Income distribution was less equitable in 1976 than it had been in 1960, and one study found that fully 40 percent of the population nationwide were ill fed and undernourished. This contrast of widespread poverty amidst urban development and the conspicuous consumption of the middle and upper classes was particularly damaging to Pérez, who had been elected with a public image as a "friend of the people." AD's failure to address adequately the needs of the poor would plague the party during the 1978 electoral contest.

The government continued, as it had been doing for nearly four decades, to put a large portion of its petroleum revenues into building an industrial base, with the objective of generating future income after the nation's oil reserves had been depleted. With massive amounts of money to spend, emphasis was now placed on large-scale, high-technology infrastructure and industrial development projects. The Pérez administration's Fifth National Plan, conceived during the mid-1970s and scheduled to become operative in 1977, accordingly called for some US$52.5 billion in investments over a five-year period.

In an effort to minimize the bureaucratic entanglements entailed by such a major increase in the fiscal responsibilities of the central government, funding was instead vested in autonomous and semi-autonomous entities. The four years following the 1973-74 oil boom saw the creation of no less than 163 such entities, including textile and lumber companies, a hydroelectric consortium, shipbuilding firms, and a national steamship company and airline. By 1978 the budget outlay for state-owned enterprises and decentralized agencies was 50 percent higher than the federal budget.

The centerpiece of this state-directed program of industrial development was the massive industrial complex at Ciudad Guayana. Located near major deposits of iron and other raw materials in the vast Guiana highlands, the complex was placed under the supervision of the Venezuelan Corporation of Guayana (Corporación Venezolana de Guayana--CVG). Ciudad Guayana was developed during the early 1960s as an effort to decentralize industrial development away from Caracas. It attracted considerable private as well as public investment--most notably the Orinoco Steelworks (Siderúrgica del Orinoco--Sidor), a CVG subsidiary--and grew quickly; by 1979 its population reached 300,000. During the Pérez administration, Sidor benefited from massive new investments, including a US$4 billion project designed to increase its refining capacity five-fold. The government erected modern, large-scale aluminum and bauxite refineries and massive hydroelectric projects with a vision of converting the Orinoco Basin into a Venezuelan Rhineland.

In January 1975, the government cancelled the iron ore concessions of subsidiaries of two United States-owned firms (United States Steel Corporation and Bethlehem Steel) operating in the Guayana highlands. It was not an unexpected move, as local ownership of raw-material extraction had been frequently addressed during the 1973 presidential campaign. The nationalization process took place smoothly: the two companies accepted US$101 million in compensation and agreed to sign one- year management contracts to provide continuity in the operation of the mines during the transition.

Congressional approval, the following August, of a bill nationalizing the petroleum industry had also been anticipated. The fourteen foreign oil companies involved did not object vigorously to the move; the Venezuelan government had granted them no new concessions since 1960, and their share of the profits from the petroleum they extracted had dropped to 30 percent. The US$1 billion they received, though only a fraction of the replacement cost of the assets they surrendered (including 12 oil refineries with an aggregate capacity of 1.5 million barrels of oil per day, along with some 12,500 oil wells), was generally believed to be as fair and generous a compensation as possible under the circumstances. The fourteen foreign firms were consolidated into four autonomous entities, modeled after the four largest of the foreign enterprises, and placed under the administrative supervision of the Venezuelan Petroleum Corporation (Petróleos de Venezuela, S.A.--PDVSA), a holding company fashioned out of the CVP. General Rafael Alfonso Ravard, who had managed the CVG in a highly efficient, technocratic manner quite atypical of most government ventures, was chosen to head PDVSA.

The Pérez administration had devised its grandiose Fifth National Plan under the assumption that rising oil prices would boost government revenue throughout the 1970s. Instead, Venezuela's oil income leveled off in 1976, then began to decline in 1978. Foreign commercial banks, awash with petrodollars deposited by other OPEC nations, provided loans to make up the shortfall so that Venezuela's development program could proceed on schedule. On the one hand, the banks saw oil-rich Venezuela as an excellent credit risk, while on the other hand, the autonomy of Venezuela's state firms allowed them to borrow excessively, independent of central government accounting. To expedite their receipt of this external financing, the autonomous entities opted for mainly short-term loans, which carried higher rates of interest. As a result, by 1978 the public-sector foreign debt had grown to nearly US$12 billion, a five-fold increase in only four years. An estimated 70 to 80 percent of this new debt had been contracted by the decentralized public administration.

Between the vast increase in oil revenues before 1976 and the immense foreign debt incurred by the government, the Pérez administration spent more money (in absolute terms) in 5 years than had all other governments during the previous 143 years combined. Perhaps inevitably, a lot of money was squandered in mismanagement and corruption. Despite expansive overseas programs to train managers of the new public entities, the lack of competent personnel to execute the government's many sophisticated endeavors became painfully evident. The delays and myriad cost overruns that ensued formed the backdrop of frequent malfeasance by public officials. Overpayment of contractors, with kickbacks to the contracting officers, was perhaps the most rampant form of graft. Featherbedding and the padding of payrolls with nonworking or nonexistent employees also became common practices.