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December 19, 2016
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May 26, 2005
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February 22, 1974
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Approved For Release 2005/06/09: CIA-RDP8&0,875LR Weekly Summary Special Report Venezuela: Prospects Under Perez State Department review completed GIA 0 C, n I I ri7k, i'"I., I , flL , . T SERVICES 2IANCH F.M.1 I h! as " Secret N" 957 February 22, 1974 'ROY ' No. 0008/74A 25X1 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 25X1 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 25X1 SECRET VENEZUELA Prospects Under Perez The landslide proportions of Carlos Andres Perez' victory in the presidential election and the unprecedented majority his Democratic Action Party won in Congress give his government the potential to be the strongest Venezuela has had since that of Romulo Betancourt (1958-63). In contrast to President Caldera, who was short on both public support and congressional backing throughout his term, Perez will begin with a secure position of leadership and a generally free hand as president. His chances to sustain this strength appear good. Despite his background as a controversial po- litical figure over the years, the vigor and de- cisiveness he displayed in his bid for the presidency clearly appealed to the electorate. During the pre- inaugural period, he has worked to nurture the new spirit of dynamism by conducting an intense round of press conferences, TV appearances, newspaper interviews, and consultations with advisers and experts. He means to give substance to his cam- paign motto, "DemocrFcy with Energy," through- out the five-year term that begins on March 12. He intends to focus on domestic matters, where his philosophy is mildly leftist and reformist. Venezuela's oil boom and high per capita income have created a picture of pros- perity that is still unavailable to large segments of the population. The con- spicuous consumption of the privileged has created severe social tensions, which the new government is intent on 111UU L1 tai ueveiuprnent programs launched by his predecessors and to as- sist Venezuela's I ong-neglected farm population, hoping to make agriculture an "engine of de- velopment." Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 Approved For Release 2005/06/09-- P85TOO875ROO1500060004-2 ,SEdKff 25X1 Venezuela's oil boons mid hick her capita income huwe created a picture of prosperity that is still iiiiavailablc to large se merits of the population. Special Report February 22, 1974 Approved For Release 2005/068 P85T00875ROO1500060004-2 Approved For Release 2005/O 09C -RDP85T00875R001500060004-2 9ERET 25X1 Oil: A Tool and - Symbol Perez feels that the domestic programs he envisions can be realized only by better manage.- ment of the country's oil resources. He believes that Venezuela's oil treasure represents a power- ful tool from which he can extract both the funds and concessions needed to implement his pro- grams. His determination to make oil work more effectively for Venezuela's needs is reinforced not only by the heavy world demand for petroleum, but also by the p.:!itical necessity to respond to the nationalist mood in Venezuela. For the Venezuelan public, the foreign- operated oil industry has the same symbolism as did copper in Chile. Besides their deep resentment of the very visible role of foreigners in economic and cultural affairs, Venezuelans at all levels of society feel the need to express their new-found sense of national identity, and are increasingly protective of their national assets. The rising spirit of nationalism has also fed Venezuela's desire for a leadership role in the hemisphere, and oil serves that ambition as well. Perez has already put his prestige on the line by announcing that he will use his oil policy to break down the "totalitarian" trade policies the indus.. trialized nations adopt in dealings with the devel- oping countries. Perez told visiting economic min- isL s from oil-short Central America that his ad- ministration plans to use its increased oil revenues to help the less-developed countries. He ruled out any special price on oil for these countries, but indicated that he would consider providing long- term, low-interest financing for petroleum sales at market prices. He also guaranteed that Vene- zuelan oil would be availaL.e to the Central American states. In protecting the country's independence, particularly in oil matters, Perez must be even bolder than his predecessor, who was able to provide for government exploitation of gas re- serves and to decree a host of minor controls over foreign oil interests-despite their vigorous pro- Special Report tests. In fact, because of accusations that he and other Democratic Action administrations have been friendly toward US business interests, Perez may lean over backwards to avoid seeming to favor US corporations operating in the country. Caldera will not give Perez an easy starting point. In his few weeks left as president, Caldera has already expropriated two almost-defunct por- tions of Creole oil concessions and plans other nationalist measures, such as converting foreign- owned milk and electric power concerns into mixed enterprises with Venezuelan Government participation. Party leaders are preparing a draft bill calling for immediate nationalization of the oil industry when the new congress convenes on March 2. Complete nationalization at this time is a highly unlikely possibility, yet an idea worth plenty of political capital. In an action designed in part to counter the opposition's political gam- bit, Perez told a number of journalists recently that present foreign oil holdings will revert to the state within two years after his government takes office. In the new congress, Caldera's Social Chris- tians, as the major opposition party, will beat the drums of nationalism whenever the new govern- ment exhibits apparent weakness in its dealing with the oil companies or the US. The party's courses of action are somewhat circumscribed by the fact that it is still in considerable disarray following the elections. A party congress, report- edly scheduled for June, has been put off until later in the summer, presumably to give Caldera time to orchestrate the conclave. This may avoid a fractious session marked with recriminations over the recent election and divisive debate over the tactics and policies that the party should espouse during Perez' administration. It is with this set of convictions and pres- sures that Perez will launch his effort to secure a better deal from the US,' Venezuela's traditional and still-favored market. But his approach and 3- February 22, 1974 Approved For Release 2005/061 G R UP85T00875R001500060004-2 Approved For Release 2005/06/0d,p, RAP85T00875R001500060004-2 25X1 Venezuela bimmaas " Mane Grande rE`nco !rq ados le Sol to Guanare Garlnas? San Crlrldbal P% &e Martin Oilfield Selected crude oil pipeline Refinery it Petrochemical complex 0 60 100 150 Miles 0 50 100 160 Kilometers Special Report Lechoso a Las -/ Temblador Mercedes EI Tlpre' . 1 Orinoco Ter Belt or February 22, 1974 Approved For Release 2005/06jqfE;0R f P85T00875RO01500060004-2 Approved For Release 2005/O6/O8EQdfFJC 1 85TOO875ROO1500060004-2 25X1 style will be those of a pragmatic businessman, not those of a demagogue or ideologue. Perez is unencumbered with the ideological baggage of his Social Christian predecessor, and he senses no practical or political advantage in joining the ranks of Yankee-baiters. He has gone along with Caldera's decision to take a percentage of oil royalties in kind, but has passed up opportunities to threaten a forced lowering of production during the oil crisis. In essence, Perez has no basic disposition to be an adversary in relations with the US, with which Venezuela-and his party par- ticularly-has enjoyed cordial ties for a long time. Yet Perez has expressed dissatisfaction over what he sees as disequilibrium in US-Venezuelan relations. Venezuela, he believes, should receive more from the US in exchange for being a de- pendable supplier of oil-more, that is, than high prices and an assured market. Specifically, Perez hopes to achieve: ? the removal of trade barriers to non- traditional exports that he hopes to develop, such as metal products, chemicals, and petro- chemicals; ? assured adequate supplies of industrial raw materials and agricultural products (cot- ton, black beans, wheat, soybeans, pulp and newsprint, synthetic fibers, stainless steel, fer- rous scrap, and equipment such as farm machinery-all of which are in short supply world-wide) ; ? technical and managerial assistance for development projects at reasonable prices. Perez will probably be most interested in negotiating the general terms of an over-all eco- nomic agreement that includes oil, trade, tariffs, and other pertinent fields. He will be hesitant to negotiate a government-to-government agreement based strictly on oil, having already expressed his concern about the pitfalls of such an agreement. He will want to keep fairly open the range of options he has in such matters as the nationaliza- tion of the oil industry, a goal Venezuelans in general want to achieve during the new presiden- tial term rather than in 1983, as now officially scheduled to begin. As a first step, Perez report- edly plans to set up an autonomous government organization that will be responsible for planning and managing the early reversion to Venezuela of foreign-owned oil companies. The organization would be a cabinet-level office separate from the Ministry of Mines and Hydrocarbons, which would concern itself only with the day-to-day short-range management of petroleum matters other than reversion. Perez is likely to be a tough but not intract- able bargainer. His hand is strong because he has both alternative markets for oil and other source, of investment as well as a huge budgetary leeway for absorbing the initial losses that would prob- ably follow any reorientation of Venezuela's mar- kets and trade relationships. If, despite his prefer- ence for good relations, he eventually arrived at an adversary relationship with the US, he could, with Venezuela's resources, break past ties with the US without risking an economic crisis. Perez is confident, however, that the US interest in continuing good relations with an important neighbor and in maintaining access to Venezuelan oil will lead to eventual accommodation to Vene- zuela's needs. Venezuela has had oil development and mar- ket offers from Japar:, Romania, Western Europe, and Brazil, but the US remains Venezuela's most attractive economic partner. This partnership is natural from a geographical standpoint and be- cause of the history of a long political friendship during which abundant and varied lines of contact have developed. Because the great bulk of tech- nical equipment throughout Venezuela's modern sector is made in the US, it will be much easier and less expensive for Venezuela to maintain its ties with the US than to break them. The fre- quent consonance of views in international affairs reinforces the comfortable relationship. Special Report February 22, 1974 Approved For Release 2005/06/O:CTA-KDP85TOO875ROO 1500060004-2 Approved For Release 2005/06/09 CIA-RDP85TOO875ROO 15000600,04-2 SECRET Current oil production, around 3.2 mil- lion barrels a day, is about 3 percent above 1972 levels but is very near capacity. Re- cently tightened conservation restrictions could reduce 1974 production about 200,000 b/d. Production potential has declined be- cause of limited exploration; proved reserves have declined and are now equal to about 11 years' production at current rates. The con- cession agreements call for reversion of con- cessions to the state beginning by 1983 with- out compensation. The net book value of US investment in the Venezuelan petroleum sec- tor declined from almost $2 billion in 1960 to about $1.5 billion in 1972. Drilling activity was down from 632 wells in 1970 to 490 in 3972, and of these only 64 were exploratory. Petroleum generates about one fifth of GNP, two thirds of government revenues, and 90 percent of export earnings. Revenues from oil have risen from $1.8 billion in 1972 to an estimated $2.8 billion in 1973. For the cur- rent year, revenues could reach $8-11 billion. In 1973, the government's budget amounted to only $3.4 billion. Development of the Orinoco Tar Belt, which contains an estimated 700 billion bar- rels of heavy oil (of which about 10 percent is recoverable under current technology) will re- '[ quire estimated outlays of $4-6 billion to de- velop production of one million barrels derail and to acquire complex new technoloQV.l 25X1 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2