By Kevin Sullivan
Washington Post Foreign Service

CARACAS, Venezuela, June 17 -- Miguel Antonio Castillo, 60, never finished high school. His dreams of being an engineer walked out the door with his father all those years ago, so he raised his 11 children on his wages as a day laborer.

But now he spends three hours every day in a classroom, puzzling out the riddles of math and reading. By sometime next year he'll have a diploma and pride he has never known -- all paid for by Venezuela's state-run oil company.

"Our president is giving me a chance to make my dream a reality," said Castillo, one of thousands of Venezuelans who receive schooling, and a monthly cash payment of $50 to $100, from Petroleos de Venezuela as part of a multibillion-dollar social and political experiment being conducted by President Hugo Chavez that has provoked a storm of criticism.

Chavez's government plans to spend at least $1.7 billion -- and perhaps twice that -- in oil revenue this year on social programs ranging from subsidized food to classes on literacy, farming, hair-styling and auto mechanics. Chavez has said his goal is a "social transformation" that will "redistribute national income" into the hands of the millions of poor people who have long been denied access to this country's vast oil riches.

But critics say Chavez is pandering to the poor to save his political career and gambling irresponsibly with the long-term fiscal health of a state company that provides half the country's revenue.

"He is killing the goose that laid the golden egg," said Ramon Espinasa, an oil industry consultant at the Inter-American Development Bank who was the oil company's chief economist from 1992 to 1999. Espinasa said Chavez was spending money that the oil company needs to invest in maintenance and modernization to keep its production from falling off.

Chavez's spending program is accelerating two months before a national referendum on whether to recall a president who has become a lightning rod for criticism across Latin America and in Washington. With his fiery, class-driven rhetoric and now his plans to spread oil wealth in Venezuela's poorest neighborhoods, Chavez has enflamed this country's already contentious schism between the wealthy, who generally oppose him, and his millions of impoverished supporters.

After trying to force Chavez from office with a military-led coup in 2002, then a two-month strike at the oil company that began late last year and cost Venezuela billions of dollars in revenue, his opponents succeeded in collecting enough signatures to force a recall referendum, scheduled for Aug. 15. Both sides are preparing for a bruising campaign: Opponents claim that Chavez's government has fired workers who supported the recall, while Chavez this week called his adversaries "crazy."

A defeat for Chavez would delight the Bush administration, which has been at odds with him since he was elected in 1998 professing admiration for Cuba's Fidel Castro and disgust with the U.S.-style market economics that now dominate the region. When Chavez was briefly ousted in the 2002 coup, the U.S. government quickly moved to endorse the new government, only to see Chavez regain power a few days later.

It remains unclear whether a defeat in the recall would mean Chavez would leave the political scene. The Supreme Court ruled this week that if Chavez were ousted in the referendum, he could run again in the next regularly scheduled elections in 2006. The court did not clarify whether Chavez could run in elections to choose an interim president to serve until 2006 -- that is, whether he could run to replace himself.

A Spike in Social Spending

Chavez, a former army colonel, is leading an aggressive effort to win the referendum in this country of 24 million people, about twice the area of California. He began his high-profile spending last year, building housing and wells, turning oil company offices into classrooms and starting a national literacy campaign.

Most of the programs are directly funded and administered by the oil company. It has budgeted $1.7 billion for social projects this year, up from just a few million in past years. And Chavez recently said that he would funnel another $2 billion of company revenue into a social spending account. This week, Chavez announced that from now on, he would refer to the company as "Petroleos del Pueblo de Venezuela," the oil company of the "people of Venezuela."

At the same time, Chavez has unsuccessfully pressured the autonomous central bank to hand over $1 billion from the country's $24 billion in foreign reserves, which come mostly from oil revenue.

"Historically, petroleum income was distributed so that most of it went to the privileged elite," said Willian Lara, a key Chavez ally in the National Assembly. "Since Chavez became president, he has begun distributing petroleum income for economic development. The Venezuelan people are the owners of petroleum, so it is logical that the owners of the petroleum should get the benefit." Lara said criticism that the social programs would harm the oil company were "nothing more than propaganda to make the Chavez government look bad."

But Alfredo Keller, a pollster and political analyst, said Chavez was trying to "buy loyalty to maintain power" and "using the oil industry as a political weapon."

Keller said Chavez was playing on the fears of a nation where 67 percent of the people live in poverty, 35 percent live in extreme poverty, three-quarters of the population is either unemployed or works in the informal sector, and there have been 43,000 homicides in the past five years.

Keller said Chavez, who has about 37 percent support in recent opinion polls, has calculated that winning votes before the recall election is more important than the long-term damage his social spending could cause the oil company.

To achieve his goals, Chavez is using a $40 billion-a-year company with which he has had tortured relations. Many of its top managers at the time were responsible for a strike that began in December 2002 and lasted until February 2003. The strike virtually halted production, and cost billions of dollars in revenue to the company and to foreign oil companies that operate here, including ChevronTexaco Corp., ConocoPhillips and Exxon Mobil Corp.

Chavez fired about half of the company's nearly 40,000 workers, mainly those involved in important planning, financial and engineering departments. While government officials have said that oil production has returned to prestrike levels of at least 3.1 million barrels a day, analysts across the industry estimate that the true levels are about 2.5 or 2.6 million barrels. They said that the company's loss of experienced managers, combined with Chavez's decision to funnel profits into social programs instead of maintenance and improvements, have left the company struggling to recover.

"You don't get rid of your key technical staff and lose your most precious human capital -- that's not a political policy, it's stupidity," said Orlando Ochoa, an economics professor at Catholic University in Caracas. "There have been excesses of power in the past, but this is a Guinness record."

Prices Up, Investment Down

Venezuela has the largest oil reserves outside the Middle East, with proven reserves of nearly 78 billion barrels.

It is among the top four suppliers of oil to the United States, behind Canada and Mexico and just ahead of Saudi Arabia, and it sells its products through Citgo, its Tulsa-based retail arm. Venezuela exports about 1.34 million barrels of oil a day to the United States, 13 percent of U.S. imports, according to March statistics.

Espinasa said the company needs to reinvest at least $6 billion a year in revenue just to maintain current production levels. He said the company reinvested about $7 billion in 1997, the year before Chavez's election, but only $2.5 billion last year. Chavez's social spending, he said, would make it impossible for the company to maintain its current production, let alone meet its publicly stated goal of increasing production to 5 million barrels a day within five years.

"Their plan says one thing, but the reality says otherwise," Espinasa said. "This is all lip service."

Venezuela and other oil-producing countries have been swimming in cash this year as oil prices have hit their highest prices in more than a decade. Analysts said Venezuelan oil has averaged just over $30 a barrel in 2004, up from about $25 last year.

Espinasa said the higher revenue is providing a temporary "disguise" for Chavez's spending. He said that with the extra money currently in the coffers, Chavez can spend without drawing attention to the long-term damage it could cause in an economy in which GDP dropped 8.9 percent in 2002 then another 9.4 percent last year, in part because of the strike.

At the Caracas school where Castillo was studying for his high school diploma, every one of the 30 or so students, ranging in age from 19 to 78, said they planned to vote for Chavez in the referendum. Belkis Carrillo Ibarra, 33, who wants to become a nurse, said she was so grateful for the opportunity that she planned to register to vote for the first time in her life.

"With Chavez, finally someone is helping the poor," she said. "This will be my first vote, and I will vote for him."

© 2004