Chavez Spreads Petrodollars to Win Neighbors' Favor

By Leandro Prada | July 7, 2008 | 8:18pm EDT

Buenos Aires ( - During a recent tour of four South American nations, Venezuelan President Hugo Chavez pledged economic aid worth more than $1 billion, adding to existing pledges totaling over $8.8 billion.

Chavez, who has shown a tendency to give a hand to leftist allies such as Bolivia's Evo Morales and Rafael Correa of Ecuador, also has spread aid to other nations in Latin America, including Nicaragua, Costa Rica, Argentina, Peru, Cuba, Haiti, Jamaica, Guyana and Dominica.

With these latest investments, oil-rich Venezuela is believed to have become the largest aid donor in the region, surpassing international organizations such as the International Monetary Fund (IMF), the Inter-American Development Bank (IADB) and the World Bank.

Chavez's goal is to cut Latin American links to the financial institutions because they set restrictions on internal economic policies, demanding that recipient governments cut public spending, raise interest rates, and adhere to free trade agreements -- steps the institutions say will lure more foreign investors.

Speaking last April about the cancellation of Venezuela's foreign debt to the World Bank, Chavez stated, "Venezuela had its hands tied, I can say now we do not owe one cent to the [IMF] or the [World Bank]."

"We have freed Venezuela from these organizations, which are arms of the empire," he added, using his standard epithet for the United States.

Last year, Chavez announced that Venezuela has become "a financial center to help other countries."

Edwin "Ted" Truman, an economic expert in IMF and international finance issues at the Washington-based Peterson Institute for International Economics, does not believe Chavez's assistance truly benefits other countries in the region.

"Money does not buy friends and the amount of money that Chavez has offered countries in Latin America is trivial in terms of their long-term needs," he told Cybercast News Service.

Truman said the international financial institutions, apart from providing aid, also "provide sound and tested advice, which Chavez has yet to offer."

And although many countries constantly complain about the policy changes required by the IMF, the IADB or the World Bank, at the same time they abide by the rules of those institutions, he noted.

"Chavez's plans for regional integration are complex and far-reaching," Latin American analyst Antonio Guerrero writes in this month's edition of Global Finance magazine.

The Venezuelan leader is promoting a regional free-trade project as a rival to the U.S.-backed Free Trade of the Americas (FTAA) agreement.

According to Prof. Richard Feinberg, a Latin America specialist who served on the National Security Council during the Clinton administration, there are definite political strings attached to Chavez's financial aid.

"Chavez expects clients to follow his lead in publicly denouncing 'U.S. imperialism and hegemonism' (as well as to endorse or at least excuse his local political tactics, most recently his seizure of a major television channel)," Feinberg wrote in a recent publication of the Center for Hemispheric Policy at the University of Miami.

Truman agreed that Chavez poses a challenge, calling him "a long-term political problem for Latin America and therefore for the United States."

As for how Washington should respond, he said "U.S. leaders need to listen and respond constructively to the needs of Latin America and to avoid the appearance of dictating to these countries."

On January 1, 2008, Venezuelan is changing its unit of currency from the bolivar to the bolivar fuerte, with 1,000 bolivares equaling one bolivar fuerte under the new valuation.

About whether the change would have any impact in the region, Truman said it would not. "The Venezuelan currency, new or old, will be weak because of the high and rising inflation in Venezuela," he said.

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