On February 28th, my partner and I handed a memo to the “National Security Council” – which is the format our class, led by Arturo Valenzuela, Clinton’s former special advisor on Latin American affairs, is styled after – composed of three options for U.S. policy toward Venezuela.  Yesterday, Venezuela’s Hugo Chávez sent 10 battalions of the armed forces to the border with Colombia.  This came in response to a Colombian incursion into Ecuador, in which 17 members of the FARC, a Colombian revolutionary militia that has earned “terrorist” status, were killed.  Fortunately, our memo is still relevant.

The memo began with the following premise: “An opportunity to bolster U.S. interests in Venezuela may have arisen due to Venezuela’s economic disarray, Chávez’s domestic vulnerability after losing a referendum to consolidate his control of [the Government of Venezuela], and the freezing of $12 billion in assets of PDVSA, the state oil company.”   I’ll quickly explain this assessment.

Although the Venezuelan economy has been prodigious in recent years, high oil prices have concealed the catastrophic effect of Chávez’s economic and fiscal policies (featuring: exchange and price controls, an overvalued currency, and decreasing oil output).  Evidence of the damage is manifest in food shortages, rising inflation, and a terrible crime rate.  The Economist predicts that the Venezuelan economy will grow just 5% this year, and 3.7% in 2009. 

In December, 2007, Chávez lost a referendum that would have amended the 1999 Constitution to, among other things, end presidential term limits.  The ‘no’ vote was championed by a loose coalition of oppositionists, including student groups, the urban middle class, the Catholic Church, and business groups.  Even some significant regime supporters came out against Chávez.  His loss imparted momentum to a fairly weak political opposition that Chávez seeks to recapture prior to the regional and local elections coming up later in 2008.  Meanwhile, the freezing of $12 billion of PDVSA’s assets, the result of a lawsuit brought by Exxon Mobil, is a serious problem for a country that lacks investment its oil infrastructure.  Even OPEC doesn’t believe Venezuelan production claims of 3 million b/d in oil; it has the Venezuelan’s quota at 2.5 million b/d (barrels per day).  Aside from being an oil company, PDVSA, thanks to Chávez, provides many Venezuelans with public services.  When the oil boom ends, that $12 billion in frozen assets is really going to be missed.

Given these constraints, my partner and I proposed three options for dealing with Venezuela: engagement, containment, and confrontation (only in the case of an oil embargo against the U.S. or a military attack on a Venezuelan neighbor). 

The engagement option was based on idea that Chávez needs an exit strategy.   We felt that Chávez is unlikely to beg the U.S. for mercy.  If the U.S. were to offer him a way back into the hemispheric order - in exchange for some serious signs of behavioral reform – then he may just be willing to take it.  After all, Chávez is an elected leader and if the Venezuelan government collapses, we don’t know what it will be replaced with.

The containment option was essentially to continue what we are doing now, but this hasn’t really worked.  Our allies in the region have been hard pressed to join the U.S. in isolating Chávez because the U.S. is so unpopular in the eyes of their citizens.  This is not to suggest that the U.S. needs to be “popular,” but we do need to have enough clout to make it within the interests of other countries to do what is in our interest.  But siding with the U.S. is bad politics throughout most of Latin America.  Our containment option also called for increasing democracy and economic assistance for Latin allies to create a ‘reward’ for being on the U.S.’s good side.  The Bush administration’s 2008 budget request for foreign assistance to Latin America has been slashed, and much of what remains is earmarked for counternarcotics and security training.

Finally, the confrontation option was designed to prepare the U.S. for a dip in oil imports and the possibility of a Venezuelan military incursion.  On the latter issue, we thought the U.S. should be prepared for an airstrike on Venezuelan military targets if Chávez attempts to invade either Guyana or Colombia.  Venezuela has a longstanding boarder dispute with Guyana (it actually claims ownership of a good chunk of its resource-laden neighbor), and plenty of tension with Colombia.  I’d be shocked if Bush didn’t have a similar plan sitting in his desk drawer: Venezuela has imported $4.6 billion worth of arms and military equipment since 2006. 

Given that Chávez has a financial crisis looming and no exit strategy, we should not be surprised that he’s flexing his muscles on the Colombian border right now.  As President Bush knows, wartime offers a number of advantages to a sitting president.  For Chávez, the advantages are far more fantastic.  He can augment his decree powers by calling a state of emergency, silence his political opposition, and, perhaps, find a cause around which he can unite his military.  He can also deflect domestic political and economic pressures by blaming Colombia and the U.S. for Venezuela’s increasingly precarious footing.  If he’s lucky, maybe he can convince some worried country or international institute to pay him to take the soldiers back to the barracks. 

Does Chávez’s military maneuver yesterday render option 1, “engagement,” anachronistic?  If this option does actually exist in the Bush administration’s policy quiver, the situation would have to die down before it could be employed.  So far, it appears that the administration is ignoring the threat from Chávez, which I consider a wise move (yes, I just agreed with the Bush administration).   At present, Chávez is little more than a mouth with an overdrawn bank account.  His armed forces are weak and divided, and I’d be shocked if a rebellion doesn’t occur were Chávez to attack.  Someone in the Venezuelan military must realize, if Chávez doesn’t himself, that Bush and Cheney would relish the opportunity to bomb that place.  They are probably swimming in a pool of their own drool right now, just waiting for Chávez to breach the Colombian border.Â