Missing Links

A Venezuelan Paradox

How Latin America's sole remaining dictator outsmarted the world's sole remaining superpower.

Oil and beauty queens. For decades, those were the main story lines about Venezuela that caught the attention of the international media. Not anymore. Now the country seems to spring another surprise every other week. One of the greatest surprises of the Venezuelan crisis is how little Washington has mattered. Another is that Fidel Castro's Cuba -- small, poor, and isolated -- has been far more influential in Venezuela than George W. Bush's mighty America. Few episodes better illustrate the limitations of modern superpowerdom than the outmaneuvering of Uncle Sam by Fidel in a neighboring country that also happens to be one of the United States' biggest oil suppliers.

The United States could not do much as Hugo Chávez took Venezuelan politics by storm and almost overnight transformed one of the United States' most reliable partners into its most adversarial neighbor in South America. Last year, despite common perceptions to the contrary, the United States was also surprised when a cabal of Venezuelan military officers and business leaders hijacked a massive civil protest and briefly ousted Chávez. The clumsy, anti-democratic behavior of the plotters and the swift, effective reaction of Chávez's supporters returned the president to power, once more startling the United States and leaving the Bush administration's spokespeople sputtering awkwardly about their hesitation to unequivocally condemn the coup. Recently, the U.S. government was surprised again by labor strikes disrupting its oil supplies, just as the superpower contemplated military action in Iraq.

The United States has been just too busy to worry about Venezuela. September 11 took all of Latin America off the map for top U.S. policymakers. Without Islamic terrorists and nuclear capabilities, the region cannot compete for the time of U.S. leaders, who have given scant and intermittent attention to Venezuela's crisis. Moreover, when a democratically elected president engages in thuggish, undemocratic practices but doesn't cross lines that trigger international outrage or directly threaten U.S. interests, the options for intervention available to even a superpower remain limited. The tardy, ambiguous U.S. reaction to last April's attempt to oust Chávez further constrains Washington's ability to intervene. Democrats in the U.S. Congress wasted no time in denouncing the Bush administration for its handling of the situation. In effect, U.S. policy toward Venezuela was paralyzed by a lack of clear options, an outburst of partisan politics, and the almost exclusive focus of Washington's policymaking apparatus on neutralizing al Qaeda and Iraqi President Saddam Hussein.

In contrast, Cuba's attention to Venezuela has been sustained and effective. That is because Havana has had the need, the opportunity, and the means to be the most significant foreign influence in the Venezuelan crisis.

Cubans have no foreign policy goal more fundamental to their economic well-being than ensuring Chávez stays in power. Venezuela's oil, "sold" under highly advantageous conditions to Cuba, is an important reason but not the only one. The alliance with Venezuela has done wonders to help Cuba ease the political and economic isolation that, thanks to the shortsighted U.S. embargo, has choked the country since the collapse of the Soviet Union. Indeed, Venezuelan Air Force pilots report that the equivalent of an airlift between Caracas and Havana has been established. Cuba is cementing its presence in Venezuela by sending thousands of sports trainers, health workers, and other government employees to spend extended periods there; at the same time, a large number of Chávez's supporters are training in a variety of fields on the island. Most of the Cuban advisers are doctors and athletes, but some of them are political operatives and intelligence officers. Commenting on last year's abortive coup against Chávez, a European ambassador in Caracas said, "I don't know which was a bigger factor in returning Chávez to power, the ineptitude of his enemies or the effectiveness of the Cubans, but I do know that both played a role."

Havana not only has strong motives to support President Chávez; it also has the talent and the institutions to do so with great efficacy. The New York Times recently reported that Cuban intelligence has been able to infiltrate some of the most sensitive spy agencies in the United States. Historically, Cuban agents have been either directly involved or have had front-row seats in almost all the revolutions, coups, and guerrilla movements in the Third World. Such experience certainly comes in handy when helping a valuable ally such as Chávez. Cuban diplomacy supported by Venezuelan oil money has also made significant inroads among Caribbean nations, which control an influential voting bloc in the Organization of American States (OAS). Such ties may well help sway the OAS, which, together with a recently created group of friendly nations, is attempting to mediate between Chávez and the opposition.

The Venezuelan situation can only be solved by Venezuelans. But, as the crisis deepens, the role of other countries will be crucial. Perhaps, even the sole remaining superpower will be able to find a way to avoid being outsmarted again by the hemisphere's sole remaining Cold War dictator.

Missing Links

Cheap Dollar Diplomacy

Worries over U.S.-European estrangement miss the real threat: the falling U.S. dollar.

For more than a year, the badly deteriorating political relationship between the United States and Europe has provided rich fodder for analyses, dire predictions, threats, and appeals. Meanwhile, as politicians, diplomats, and generals have fretted over the geopolitical causes and consequences of the worsening trans-Atlantic relationship, the U.S. dollar has been sliding against the euro. Recently, the dollar hit a four-year low in its value against the euro; most experts believe the greenback will not regain its strength for some time. And that points to a truth that is not yet fully recognized on either side of the Atlantic: A U.S. dollar whose value relative to the euro has plummeted by about 40 percent since late 2000 will have a greater impact on the U.S.-European relationship than all the diplomatic maneuvers, speeches, and articles on the current state of trans-Atlantic affairs.

The most immediate consequence of a weaker dollar is that Europe will be flooded by U.S. exports, and the United States will see a surge of European tourists whose apprehensions about President George W. Bush's unilateralism will be tempered by increasingly cheap opportunities to take the children to Walt Disney World. Americans will not switch to Californian wines because of France's stance on Iraq but rather because French wines will become more expensive. Yes, the exchange rate is indeed a magic number.

The realignment of the U.S. dollar against the euro will make life more difficult for European industries, while making U.S. companies more competitive. The U.S. private sector has already been sharpened by its swift, ruthless, and profound restructuring in response to the bursting of the stock market bubble, a slow economy, corporate scandals, and the shock of terrorism and war. In contrast, Europe's legendary rigidities in labor markets, burdensome business regulations, and closed corporate ownership have hamstrung the ability of many European companies to react swiftly and effectively to changes in the global economy. A cheaper U.S. dollar will pose a major challenge for European corporate executives, policymakers, and labor union leaders. Managers in euroland will face unprecedented pressures to cut costs, policymakers to save and create jobs, and union leaders to protect the generous benefits they have secured for their members over the years. The clash between these contradictory forces is certainly not new, but the consequences of a stronger and less competitive euro will bring these trends to a boil and exert immense influence over the course of European politics.

The economic and political consequences of a strong euro may spur the creation of the coalitions needed to undertake long-awaited structural reforms. From macroeconomic policy and deregulation to labor market flexibility and changes in corporate ownership and governance, continental Europe faces a daunting reform agenda. Therein lies the problem. The reforms imply such wrenching social and political rearrangements that Europe may be tempted to combat the effects of a cheaper U.S. dollar by retreating behind subsidies and protectionist barriers. In the absence of reforms, some companies may be able to shift their manufacturing to cheaper and friendlier locations, but most will have no other option than to pressure their governments for more subsidies and greater protection. As joblessness increases, political demands to save the jobs lost to imports, industrial relocation, or new immigrants will become even more intense.

A weaker U.S. dollar will also dim prospects for trade liberalization. The World Trade Organization's (WTO) Doha round was already facing an uphill battle; negotiating greater trade openness in the midst of rising European unemployment and an import surge may make the hill impossible to climb. Sadly, the newly realigned currency may also undermine the significant progress that European agriculture ministers have recently achieved in their talks to overhaul the European Union's agricultural subsidies. Naturally, a Europe that deals with a strong euro by relying on state-centered, protectionist measures is poised to have more frequent and acrimonious trade disputes with the United States and the WTO.

But another scenario is possible. A strong euro could also be a mighty catalyst for overcoming continental Europe's aversion to undertaking economic reforms that almost everyone agrees are necessary but that no one has yet been able to push through.

In any case, the recent decline of the U.S. dollar has also revealed that a weak currency need not always be a sign of a nation's weakness. The United States seems well equipped to minimize the negative consequences of a sharp devaluation of its currency while taking advantage of the opportunities a weak dollar creates. A major factor in cushioning the ill effects of a weaker currency is the flexibility and adaptability of the U.S. economy. In particular, the private sector in the United States is far less fettered than its European counterpart by stultifying regulations and complacent corporate shareholders.

Finally, the realignment of the exchange rates will also help realign popular thinking about the future of international affairs. During the 1990s, international finance became such a dominant factor that some experts argued traditional security issues would become lesser factors in world politics. The terrorist attacks of September 11 showed the absurdity of this idea; generals, military experts, and muscular international politics all came back in vogue. Soon, the focus will shift again. The declining dollar will not only help rebalance the U.S. trade deficit but also the way people think about the world.