America Abroad

By Strobe Talbott

CARACAS <

If any country is in a position to profit from the misfortunes of the Middle East, it is Venezuela. As one of the largest exporters of petroleum outside the Persian Gulf, it stands to reap a windfall of $2 billion this year from the rise in oil prices since Iraq invaded Kuwait. Yet as seen from Miraflores Palace, the official residence of President Carlos Andres Perez, every silver lining has its cloud. "This is phony money that we're making from the crisis," said Perez last week. "Whatever it can buy today, it may bring us damage and danger tomorrow."

Perez speaks from experience. During an earlier term as President he led his country on a giddy spending spree when oil revenues soared after the Yom Kippur War and the Arab embargo brought on the first oil shock in 1973. Venezuela squandered billions of petrodollars on luxury imports, high- visibility public works and a bloated state bureaucracy. When oil prices fell in the early 1980s, Venezuela retreated behind a wall of protectionism and a popular though inefficient system of price supports for local products.

By then Perez was out of office, with plenty of time to ponder a lesson for the future. "A price spike is bad for everybody, producers and consumers alike," he says. "It is worst for developing countries that have oil, because they tend to go on a binge of happy-go-lucky indebtedness." Since returning to the presidency in early 1989, Perez has reined in government spending, reduced subsidies and tried to stimulate growth by easing restrictions on foreign trade and investment. He hopes that with infusions of capital from abroad, Venezuelan firms will be better able to sell their goods on international markets.

But Venezuela's integration with the outside world makes it all the more vulnerable to what is happening there. Faced with staggering new energy costs, Third World and East European countries are asking for Venezuelan oil on credit or at a discount. The more poverty grows in Latin America and the Caribbean, the more Venezuela must worry about illegal immigration, cross- border crime and political instability in the region. Should high prices trigger a full-scale recession in the U.S., there will be fewer buyers for Venezuelan exports, higher interest on outstanding debt and less American capital to help underwrite expansion.

Perez also fears that the spurt in oil prices could jeopardize his efforts to wean his country from the profligacy of the 1970s. "The psychological consequences of these extra revenues conspire against our people's willingness to accept an increase in the cost of living and other austerities that come with reform," he says. "With all these short-term profits, many will say, 'Why worry any longer?' "

Not that Perez plans to leave the Saddam bonus unspent. His government intends to build new wells, refineries and storage facilities. During a meeting in New York in October, Perez told George Bush that Venezuela plans to expand its production capacity. Great, said Bush; a former Texas oil speculator himself, he wasted no time in urging Perez to liberalize Venezuelan foreign-investment laws even further and let U.S. companies join in exploration and production. Perez's political opponents might make that difficult for him, since it was he who nationalized Venezuela's U.S.-dominated oil industry in 1974. But whether Yanquis are involved in the drilling and pumping or not, Perez said last week that his government is committed to expanding Venezuela's capacity over the next two or three years by about 50%, or 1 million barrels a day. The more oil that is available in the Western hemisphere, the less the industrialized world will have to rely on the ever tumultuous Middle East.