Russia extends a helping hand to Chavez

Closer, ever closer.  Putin and Chavez are working against the U.S.

The last 20 years of the USSR were characterized by very poor economic results, at least compared to the economic performance of the leading western economies. With the fall of communism, new hopes for a better life came to millions of people living in the different republics and satellite countries. However, the transition was difficult, and although some countries like the Czech Republic and Slovenia were able to overcome the early years of transition, becoming the prosperous democracies that they are now, some others eventually adopted new types of autocracies. In the case of Russia, the early years of the Yeltsin administration saw the Russian GDP per capita falling about 50%, and the dismantlement of the major industrial parks.

The persistent economic problems that led to the 1998 rubel crisis, its strong authoritarian tradition and the lack of a new generation of democratic leaders led to the election of a former KGB officer, Vladimir Putin, as president of Russia in 1999. Under Putin, the brief Russian democratic experience vanished, and a new kind of authoritarianism emerged. In a ranking from 1 to 7, in which 1 means a regime of full political and civil rights and 7 the absolute absence of them, Freedom House has progressively worsened the ranking of the Russian regime, from 3 in 1999 to 6 today. New vague legislation to fight terrorism is often used against political opponents. Thirteen journalists have been assassinated since Putin came to power, including investigative journalist Anna Politkovskaya, which has had the effect of silencing most public critics against the government.

There is an open campaign against NGOs and human right groups, and an increasing segregation against Georgians living in the country. Although people still have the right to vote, elections are far from fair; Putin has strong control of all political powers of the State. Together with widespread corruption, this has allowed him to jail potential opponents like the oil magnate Mikhail Khodorkovsky, confiscating his assets which included the oil company, Yukos. A new law allows firing legislators if they change parties, and prohibits the forming of coalitions in elections. It also removed the option of voting "against all" from the ballot, which invalidated elections if it was the most voted. The economic system in Russia largely resembles a fascist State. Although private property is recognized, there is strong State intervention.  Property rights are shaky, openly favoring those businesses friendly to the Government and prosecuting those critical of the Kremlin.  Labor unions are quite limited in practice, and employers frequently ignore collective bargaining rights.

What has made this increasing authoritarianism possible in modern Russia? There is no doubt that this can in part be attributed to better economic conditions during the last years. According to the World Bank, compare to the poor economic performance during Yeltsin administration, in which per capita income had a average negative growth rate of -6.2% per year, during the Putin administration, the Russian per capita income has increased an average of 6.9% per year. That has given Putin enough popular support to consolidate his political power inside Russia.

However, Putin’s political ambitions are not only about Russia. He has repeatedly stated that dismantling the Soviet Union was a mistake, and has not hidden his intention of making Russia a true heir of the former Soviet world power. In fact, the Russian attitude toward terrorist states like Iran has been rather weak, as they plan to take advantage of the increasing isolation of the Islamic regime in order to increase Russian influence on them.

In Latin America, Putin has found an excellent ally in the Venezuelan dictator, Hugo Chavez. However, the relationship between both presidents has not been easy at times, mainly due to the peculiar characteristics of the South American President, whose ambitions and megalomania make him believe that he must lead the world revolution against capitalism, as he has stated several times. In economic terms, Venezuela represents a new market for Russian exports and investments. During the last three years, Russia has sold Venezuela 100,000 AK-103 assault rifles, 53 helicopters, including 12 Mi-17 military helicopters, and 14 Su-30MK fighter aircrafts. That has represented for Russia earnings of over 5 billion U.S. dollars. Russia has also offered to sell Venezuela 50 of its most advanced warplanes, the MIG 29 Fulcrums. Last year, Chavez stated that Russia would deliver 5 Kilo class 636 diesel submarines to Venezuela, 10 more Su-30MK fighter aircrafts and 5,000 Dragunov sniper riffles. Currently, plans are being made to acquire from Russia an additional 36 helicopters and Su-35 fighters, a yet undetermined number of Antonov transport aircrafts. Talks about setting up a factory of Russian weapons in Venezuela are currently underway. According to Chavez, he is buying this vast amount of weaponry because he is getting ready for an eventual USA invasion. However, this rearmament causes more concerns among Venezuela’s neighbors than to the US, as Chavez is building alliances with subversives groups everywhere in the region. This includes its recent petition for removing the Colombian FARC and ELN from the list of "terrorist organizations," despite that they have kidnapped over 700 people, are involved in arms and drug trafficking, have employed car and gas cylinder bombs, landmines, extortion, hijacking, and enrolled by force poor children in their army to reach their goals.

The Russian-Venezuelan economic relationship also extends to the energy sector. Venezuela was looking for Russian help to build an ambitious gas pipeline to connect Venezuela, Brazil, Bolivia, Argentina, Uruguay, and Russian State firms. LUKoil and Gazprom are increasingly replacing American oil companies in the exploitation of the Orinoco Basin. Although the Russian presence in the exploitation of petroleum in Venezuela is still relatively small, it is growing strong. Venezuela is the fourth oil supplier of the USA.

Since the Russian diplomacy has a clear commitment to restore its world influence, at least at the Cold War level, Chavez also represents for them a door to Latin America in terms of political and economic influence. Chavez has strong influences on the several Latin American countries Venezuela is financially supporting, namely, Argentina, Bolivia, Cuba, Ecuador and Nicaragua. That has allowed the Russians to place a foot in other countries of the continent, looking to expand its market for its military and oil industries, as evidences the Russian delegation that recently visited Argentina.

The danger of that situation is that an increasing influence of Russia in Latin America also means a stimulus to the authoritarian forces in the region. However, although the growing Russian influence may look strong, the fact is that it has a strong weakness: its economy is at every time becoming more dependent on the oil industry, and in particular, on the high oil prices. On the other hand, due to the high oil prices and the bursting of real estate bubble, the USA economy is recently giving strong signals of a forthcoming stagflation: a recession with increasing inflation rate. Although the Fed has recently announced that it will cut interest rates in order to prevent an economic slowdown, the recession does not seem easy to stop. That policy may bring even higher inflation and higher oil prices in the short-run, and force the Fed to abandon it in the future, postponing a mild recession now to a deeper recession tomorrow. What all that means is that, if the USA enters into a recession, it seems difficult that the rest of the world do not enter into a recession as well, with the unavoidable fall in one of its major causes, the oil price. That fact would put in troubles the oil dependent Russian and Venezuelan economies, creating strong political problems to both dictators. Could that bring the end of the last wave of autocracies?

Jose Noguera obtained a Ph.D. degree from State University of New York at Buffalo. He currently teaches and conducts research on macroeconomics, political economy and development with the rank of Associate Professor at the Whittemore School of the University of New Hampshire. He has also been appointed at Michigan State University, CERGE-EI (Prague, Czech Republic), University of Warsaw, Central University of Venezuela and Mohila Academy University of Kiev.