May 14, 2008

Obsessions make the man

Katy says: - The US, the Constitutional Reform, the FARC, Fidel - these are some of Chávez's well-known obsessions. His latest one is November's Regional Elections. Lately, not a day goes by without someone from the government reminding voters of the importance of the coming vote. But why? What is it about November that is so important to Chávez?

Chavistas talk non-stop about what they think is at stake in November. They say this election is crucial for the Revolution and they outlandishly suggest that an opposition win would risk breaking up the country and plunging us into a civil war.

Yet Chavez's infatuation with the Regional Elections is curiously overblown. It's as if nobody has bothered telling him to relax, because the reality is that a good outcome is much more important for the opposition than for the government.

The previous regional elections, held in 2004 on the heels of a Recall Referendum, left the opposition completely bewildered. Predictably, Chávez ran the table, winning 20 of the 22 state governorships up for grabs and all but a handful of the mayor's offices.

So in spite of record-high oil prices, there is little Chávez can do to prevent the opposition from doing better. Bouyed by last December's victory, and in spite of continuing internal struggles to define unity candidates, the opposition seems well-positioned to do much better than the last time. Their challenge is not to improve but to hold on to a key fact they established in the last Referendum: that the government is no longer backed by the majority.

The effect of likely opposition gains on chavismo is minimal. Chavista governors and mayors are serial underperformers, notoriously inefficient public servants that are more concerned with busing people to rallies in Caracas and driving around in expensive Hummers than delivering for their constituents. This is something Chávez himself has recognized on the numerous ocassions he has scolded mayors and governors on live TV. It's only natural that voters want to dish out a little dose of whoop-ass on their very red local leaders.

And if they do, so what? Most of the power of state and local governments is being diluted anyway, thanks to the government's unorthodox budgetary practices.

It works this way: the capacity of Venezuelan states and municipalities to raise their own taxes is extremely limited, if not inexistent. What little power they have to raise their own income is shrinking, as witnessed by the central government's recent moves to eliminate tolls from interstate highways and take away the administration of ports and airports from state governments.

State and local governments rely on a budget allocation called "Situado Constitucional." The law governing the Situado requires that a certain percentage of each year's budget go straight to the coffers of state and local governments, allocated according to their population.

The problem for the states is that the budget is based on unrealistic assumptions. Each year, the budget assumes an average price of oil that is much lower than the market price, thereby underestimating the level of income that has to be shared with state and local governments.

Furthermore, the central government is increasingly relying on extraordinary income that is not part of the budget such as excess oil royalties, and less on traditional (or "ordinary") sources of income like the VAT tax. All this extra money goes to a parallel budget institution called Fonden, directly managed by the President and generally not available to state and local governments. Revenues distributed to state and local governments are much lower than they should be - independent estimates I have seen reckon they are receiving 30% less than what they should be getting.

Chávez has never been a fan of decentralization. Ever since reaching office he has been promoting parallel forms of community organizations - from "Bolivarian Circles" to "Communal Councils" to "Socialist Cities" - which share one thing in common: they are all heavily dependent on Miraflores. This makes his obsession with state and local governments, institutions he has never cared for and he has actively undermined, dumbfounding to say the least.

His attitude seems to be the response of a wounded narcissist, someone who woke up one December morning and found to his dismay that the majority of the country doesn't approve of him. His posturing is to prove to himself, his followers and the world that his is not a movement in decline.

Due to his extremely competitive nature, he needs a victory. He is a soldier, and for the military it's all about winning battles. It's been a year and a half since he's had a victory at the ballot box, and few egos the size of Chavez's can withstand that.