July 25, 2009

THE COST OF NOT REMOVING HUGO IN THE FIRST PLACE:

Behind the Honduran Mutiny (JOSE DE CORDOBA, 7/25/09, WSJ)

[A] close look at Mr. Zelaya's time in office reveals a strongly antidemocratic streak. He placed himself in a growing cadre of elected Latin presidents who have tried to stay in power past their designated time to carry out a populist-leftist agenda. These leaders, led by Venezuela's Hugo Chávez, have used the region's historic poverty and inequality to gain support from the poor, but created deep divisions in their societies by concentrating power in their own hands and increasing government control over the economy, media and other sectors.

Mr. Zelaya, a 56-year-old former rancher and logger with a handlebar moustache, joined this group, which includes Mr. Chávez, Rafael Correa in Ecuador, Evo Morales in Bolivia, and Daniel Ortega in Nicaragua. This past week, Mr. Ortega laid out plans for a referendum to rewrite Nicaragua's Constitution and allow him to be re-elected indefinitely, something Mr. Chávez has already achieved in oil-rich Venezuela.

It was such a move that led to trouble in neighboring Honduras. For the past year, Mr. Zelaya led a drive to rewrite the constitution to abolish term limits. On the day of his ouster, he was planning a referendum to call a constitutional assembly, even though the vote had been declared illegal by the country's Supreme Court.

The crisis has put the Obama administration in a difficult spot. Mindful of past U.S. support of coups in Latin America, it condemned the ouster and has led efforts to find a negotiated solution. But its insistence Mr. Zelaya return to power has angered many middle-class Hondurans, who feel the ouster defended the country's institutions from a Chávez-style power grab.

"This is a showdown which will determine if the Chavista model triumphs or not," says Moises Starkman, who advised Mr. Zelaya on special projects and now works for the interim government in the same capacity. [...]

Two years into his term, Mr. Zelaya reshuffled his government, bringing into his cabinet a hard-line cadre of ministers dominated by Patricia Rodas, his foreign minister. The daughter of a famous right-wing Liberal party leader, Ms. Rodas has a reputation as a doctrinaire, hard-line Marxist from her university days.

Even as leftist associates increased their influence on Mr. Zelaya, the world economy also pushed him leftwards. In 2007, Honduras was hit hard by record high oil prices. The country imports all its fuel needs, and also has no refining capacity. That means four companies -- Chevron, Exxon Mobil, Royal Dutch Shell and the local Dipsa -- control the market, importing the fuel directly and distributing it through their own service stations. As oil prices climbed, Honduras, whose power plants run on fuel, was forced to hike electricity prices, and ration power.

At first, Mr. Zelaya, desperate for relief, tried to lower the cost of imports by buying oil products in bulk, but the plan failed because the government didn't have its own oil-storage facilities. So, in 2007, Mr. Zelaya decreed a cut in fuel prices. But this move led to fuel shortages as importers complained that the price cuts undermined revenues. By mid 2008, the oil companies threatened to halt all new investment in Honduras.

Neighboring Nicaragua, which had been getting cut-rate fuel from Caracas since 2005 under a program called Petrocaribe, had no such problems. A brainchild of Mr. Chávez, Petrocaribe sells Venezuelan oil at market prices but allows its 18 member countries to finance a part of the oil at very low interest rates. As of 2007, Petrocaribe had provided $1.2 billion in financing -- similar to the Washington-based Inter-American Development Bank's soft loans in that period.

As Mr. Zelaya fought with foreign oil companies, Mr. Chávez offered cheap oil. Few here opposed the country's entry into the Venezuelan oil pact when the Congress approved it in March of 2007. "I pushed hard for Petrocaribe," says Adolfo Facusse, the head of Honduras' industrialists' chamber and now an opponent of Mr. Zelaya. Since then, Petrocaribe has provided Mr. Zelaya's government some $126 million in savings, officials say.

Mr. Zelaya, who at first had kept his distance from Mr. Chávez, was quickly ensconced in the Venezuelan's tight embrace.

Posted by Orrin Judd at July 25, 2009 7:34 AM
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