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I. INTRODUCT 
1, Venezuela is of special interest to the US for two particular reasons. 
One 
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is its economic significance as the world’s largest oi! exporter and the locus 
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of US capital investments of rough!y $3 billion. 
(In only two countries, Canada 
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and the UK, are US investments higher.) 
The other is its political significance 
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us a test of whether a Latin American country with a long history of dictatorial 
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rule and an active Communist insurgency movernent can reform its economic 
and social institutions by democratic means." 
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2. Romulo Betancourt laid the foundation of these reforms unc of must present 
Venezuelan policies. 
During his turbulent presidenev (1959-1964) Betancourt 
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initiated sorely needed social and economic referm programs, survived attempts 
to overthrow him by extreme leftists and miiit ary rightists, and managed to 
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instill in the ‘citizenry 2 resolve to preserve 
its freecloms and repres sentative 
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institutions. 
In !ate 1963, when the Castroites and Comnunists sought to dis- 
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rupt the scheduled elections with an intensified campaign of terrorism, some 
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90 percent of the Venezuelan voters defied the danger and came o:''. to choose 
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a new President. 
With the orclerly succersion of Leoni to the presidency in 
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March 1964, democracy in Venezuela passed a significant test. 
ll, THE PRESENT SITUATION 
A. Leoni, His Coalition, and His Opposition 
3. The Leoni administration, in its style, comp'ements rather than imitates 
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its predecessor. 
As a long time associate in founding and guiding the Demo- 
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cratic Action (AD) movement, Leon! shares Petancourt’s views. 
In contrast 
to Betancourt’s dynamic promotion of fresh ideas and Brose however, Leoni 
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has been the behind-the-sceres party strategist, more adept at conciliation than 
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crusade. 
His administration has concermed itcel® more 
implementing pro- 
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grams already begun than with cevising new ones. 
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4. Even so, Leoni has turned his own talents to considerable account. 
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ing from Betancourt’s eaperionce, ne has mace a point of touring the country, 
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and in doing so has maintained frequent contact with the military. 
He has 
preserved the solid organization of his AD narty. 
Thongh he did not main- 
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tain Betancourt's coalition with the next largest party, the Social Christians 
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(COPEI), after seven months of patient negotiation he did put together an 
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eltective coalition with the center-left Democratic Republican Union. (URD) 
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*Venezuela, occupying about 352,000 square miles, has a population of about 8,700,000. 
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It is rich in resources and has the highest per capita CNP in Latin America. 
Nevertheless, 
a large proportion of the population lives im dire poverty; efforts to improve this situation 
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rapidly are complicated by the high rate of population increase (3.4 percent a year), 
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and the center-right Democratic National Front 
(FND). 
In his leadership of 
this three party coalition, Leoni has cemwnstrated skill in achieving consensus. 
THE VENEZUELAN CONGRESS® 
CiAMBER 
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SENATE 
The Covernnient Coalitiva 
Center-left, comparable 
im policy to Europeda Social 
Deiwvocrats and to the APRA in Peru. 
Denweratic Republican Union (URD) 
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Vehicle of Jovito Villalba aad, since the purue of its 
extreme leftists, close to the AD in pcilicy. 
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Deniocratic National Front (FND) ............. 
Personalistic pasty revolving around Ure intellectual, po- 
litical scientist, Arturo 
Uslar Pie tri, who 
ran 
fst in 
Caracas in 1963; mostly center-right businessmen aad 
inilitary, but includes some far rightist. 
A responsible 
oppusition 
modeled 
on 
the European 
Christian Democratic movement; 
its youth incrcasinely 
look to the more radiex:t Chileaa PDC for iaspiration, 
Loosely 
knit conglomeration 
of leftists who 
its present leadess were biiter adversaries of AD, but 
the party presently offers more responsible opposition. 
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Independents and Rightist Elements ............... 
* The Communist Party (PCY) and the Movement of the Revolutionary Left 
(MIR) were excluded from the 1963 election and are not re presented in the present: 
Congress. 
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5. The coalition has been operating reasons bly smoothly, but there has been 
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a gradually increasing concern withia the administration, as well as. among - 
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its opponents, that th 
ere is too little impetus in most governmental pursuits. 
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One wing of the AD is particularly disturbed by this trend as well as by lack 
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of support for the party among university students. 
Leoni’s modus operandi 
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is not styled to capture the imayination, and many Venezuelans are coming. 
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to feel that his administration is merely muddling forward when the dimensions 
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of the country’s problems are so large as to require vigorous action. 
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6. The principal opposition party, COPET, has assumed a role unprecedented 
Venezuelan 
history—that 
of 
opposition, 
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in 
Venezuelan 
history—that 
of 
a responsible opposidon, 
ihe partys 
leader, 
Rafael Caldera, has- sanctioned a line of autonomy of action—neither blind 
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support for nor blind opposition to administration proposals. 
However, as 
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COPET has seen weaknesses in the administration, and as reconciliation with 
AD has come to appear more and more unlikely, COPEL is becoming more 
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outspoken in its criticism of the government. 
Though COPEI lacks AD's 
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depth of leadership and extent of organization, 
it has taken encouragement 
from the sweeping Christian Demucratic victories in Chile and regards itself 
as the Venezuelan party of the future. 
COPEI’s youth wing which is well 
to the -Icft of the party leadership, competes cicctively with “the Communists 
for influence araoay uni wersity st idents. 
It is aiso Gying, with some success, 
to compete with AD for leade: ship ig rural areas. 
The principal political 
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competition in RE 
is coming to be primarily between two parties of 
the Center-Lett—AD aod COPEL 
B. The lasurgency 
7. The prestige of the FALN, the issurvent organization supported by the 
Venezuelan Conmununist Party (PCV) 
and 
tne Castroist Movement 
of the 
Revulutionary Leit (AULA), has declincc since its drarnatic failure to disrupt 
the 1963 elections; the insurgent movement has been badly hurt by the gov- 
erament’s aggressive countecacuon. The government has captured many of 
its prominent leaders, lias unearthed some of its arms caches, has intercepted 
a substantial amount of financial aid trom abroad, and has generaliy kept the 
insurgents on the deieusive. 
incidents of urban terrorism have greatly de- 
creased. 
The number of gueirillas in the countryside has not changed sub- 
stantially, but several deserters have acknowledged that the FALN feld units 
are short of food and other Sugpiies, and that their morale is low. 
The army’s 
counterinsurgency ca pabilities nave improved, but the difficulty of hunting down 
the guercillas, nurticulasly in western Venezuela, remains formidable. 
Areas 
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have been declared cleared of guerrillas only to experience fresh attacks soon 
after the announcement? 
8. Important elements of (he PCV and some elements in the MIR doubt that 
a policy of armed strugyle. can be eNective under the present conditions in 
Venezuela. 
They have seen the Coma munist Party fall from its strong position 
in 1938-1959, when, as a legal varty 
and a major participant in the 1958 revolu- 
tion, it could count on 20,000 members and command over 180,000 votes in 
the national election, to its present state of peaury and ostracism. 
The only 
major sphere of political support for the PCV and MIR lies within the uni- 
versity; they have been wu: nable for the most part to crack the AD hold over 
and the peasantry. 
‘o help the PCY regain its former influence, 
a major faction has been seeking to prevail on Leoni and on the party’s own 
militant wing to negotiate a “peac 
ceful settlement. 
Tais faction would be willing 
to halt the fighting if Leoni would restore the legality of the PCV and the MIR 
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and graat amnesty to the insurgents. 
However, their inability to control the 
dichards in the guerritia movement would make an effective ceasefire unlikely. 
9. Leoni has shown no irclination 
to enter into such a bargain. 
In contrast 
to the situation which prevailed duriag most of Betancourt’s administration, 
*Total FALN strength is estimated at 1,500. 
The number of activists the organization 
could put into the field at any one time is probably much lower. 
Moveover, recent FALN 
problems—the considerable 1 amber ot arrests of members, iaternal dissension, financial diffi- : 
culties—further limit its operational strength. 
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initiatives. 
The need to cope with the insurgency problem has continued to 
divert part of the government's energies. 
In spite of all ..at has been done to 
date, Venezuela's high per capita CNP, as a statistic, still hides a wy sharp 
disparity in living conditions. 
A large proportion of the nopulation lives at the 
subsistence level, many almost completely outside the commercial economy. 
18. Low-cost housing is an example of a need which grows faster than 
the 
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government can meet it. Campesinos seeking a better 
life in town have 
inundated Caracas, the capital city of 1,500,000; over 209,000 people now live 
in its shanty towns, 
These illiterate and unskilled peasants are poorly qualified 
to find urban employment; their disappointment in this respect is accentuated 
by the conspicuous presence of urban affluence. 
Meanwhile, in the countryside 
the availability of desirable public lands is diminishing, and political and budg- 
etary considerations are limiting the purchase and distribution of underutilized 
private holdings. Moreover, since 1952 the Venezuelan Cenvress has reduced 
the land-reform appropriation. 
In part this reflects the realization that more 
land distribution will not be of much avail until the government can move ahead 
with the necessary ancillary services—roac’s, credit, housing, schools, marketing 
facilities, and health services. 
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E. Foreign Policy 
19. The dominant feature of Venezuela’s foreign policy is the Betancourt 
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 *Doctrine which holds that ‘recognition should be denied to any regime which 
comes to power by overthrowing a constitutionally elected covernment. 
Vene- 
zuela’s sensitivity on this point reflects its own experience of military dictatorship 
and the Betancourt administration’s vulnerability to 2 military coup. — 
invoked the Betancourt Doctrine to justify his boycott of the November 196 
Inter-American Conference at Rio de Jane’ ro because the Brazilian government 
had assumed 
arbitrary powers which 
sharply reduced 
its constitutionalist 
character. 
Venezuela 
also been highly crit 
tical of the 
a] inter- 
Venezuela’s democratic 
of 1958 
far greater than that : 
amone the 
Dominican rebels in 1965. 
Furthermore, the AD party feels an affinity with the 
Dominican Revolutionary Party as a psrty of the “de:noeratic left” and gives it 
limited financial support. 
Nevertheless, 
Vene: 
contributed medical and 
other supplies for the use of the Inter-American Peace Force and was one of 
the first nations to recognize the provisional government of Garcia Godoy. 
20. Venezuela has sought to promote greater cooperation among Latin Ameri- 
can states and to play a larger role in inter-American affairs. 
Despite some 
strident upposition from private industry, the administration has announced its 
intention to join the Latin American Free Trade .\rea (LAFTA). 
The Leoni 
government has also expressed a desire to become more active in and to 
strengthen such institutions as the Latin American Parliament.* 
It has advocated 
*An association of Latin American parliamentarians from countries in which the legislative 
branch plays a significant role. 
Apart from promoting closer political ties between Latin 
American countries, it also seeks to strengthen the lezislative branch in al! of them. 
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a reformulation of the OAS Charter in order to emphasize economic and social 
assistance. 
While the Leoni government rejects the concept of 2 permanent 
Inter-American Peace Force, it concedes the possible need for the use of an 
ad hoc one should a crisis arise. 
21. Venezuela continues to essert a claim 
to some two-thirds of British Cuiana, 
alleging that the international arbitration of 1999 which established the present 
boundaries was fraudulent. 
The Leoni government has pledged itself to a 
“non-violent” solution, however, and is sce’sing to arrange a settlement with 
the UK before independence is granted to Brit'sh Guiana. 
iil THE OUTLOOK 
22. Venezuela, in part becuuse of the sustaining effect of its oil income, will 
probably continue to enjoy politica! stability and economic prosperity during 
the period of this estimate. 
Nevertheless, patterns now beginning to emerge, 
particularly on the economic sicle, maxe longer range prospects somewhat less 
favorable. 
23. There is likely to be increasing impatience on the part. of many Vene- 
zuelans over the Leoni administration's failure to move as quickly and effectively 
as they think desirable in social and economic reform. 
This disenchantment 
is not likely to reach a level or to take 2 form which threatens Leoni’s hold on 
power, but it will almost certain'y be a mavor issue in the December 1968 
elections. 
Leoni will: probably manage to’ holkd his conlition together at least 
until the near approach of the elections. 
If the center-richtist "ND were to 
leave the coalition, an AD-URD com ination would stil! have a working majority 
in Congress.° 
24. The period agpeer ek before the elections is likely to be one of much 
political turbulence and little governinenta! accomplishment as the various 
party leaders vie for the. ies 
‘or of the electorate. 
As the election draws closer, 
Leoni may attempt to push through refonn 
‘ion in order to create a 
rejuvenated party image for the AJ) cancidate.® 
By this time COPEL will 
almost certainly have departed from its posture of responsible opposition and 
have begun ‘a free-swinging effort to establish that it is indeed Venezuela's 
coming party. 
25. The capabilities of the FALN insurgents and guerrillas will prohably 
decline to some extent, although it is unlikely that the Leoni administration can 
completely solve the insurgency provlem. 
Sporadic acts of violence will prob- 
ably occur, but we believe that the insurgents wil! pose no major threat to the 
government during the next few years. 
Moreover, the line that Leoni takes on 
this issue will probably continue to be resolute enough to satisfy the Venezuelan 
* Although the FND is motivated to remain in the coalition for reasons of immediate political 
advantage, some party members contend that its continued participation will only hurt its 
chances in 1968, 
As the election approaches, and especially if Leoni’s policies alienate some 
military or business elements, these voices could prevail. 
*Leoni fs constitutionally ineligible to succeed himself. 
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military. 
Indeed, a gradual further improvement is likely ia the relationship 
between the administration and the military. 
For these reasons we regard a 
military coup as unlikely. 
26. The economy, while not meeting the goals for expansion set by the gov- 
ernment, is likely to grow at the rate of about six percent annually. 
It will 
be paced by the rapidly expanding industria! sector, which wil! probably offer 
a widening variety of consumer goods. ' Despite further government investment 
in certain industries, the pattern of state: particination in the economy will prob- 
ably not change significantly. 
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27, Overall government spending om social and econum'c reform programs, 
which rose sharply in 1963, will probably continue to prow considerably through 
at least 1966. 
Subsequent increases in the level of strely expenditure are Ii ikely 
to be limited. 
By 1967, reduced annua! rates of inerease in government reve- 
nues will force Venezuela to choose among tre alternatives of red ucing invest- 
ments and social welfare expenditures, incurting budectory deficits, or increasing 
taxes—perhaps on foreign oil interests. 
Some combination 
of al! three prospects 
seems most likely. 
The agricultural reform program, ‘nm rortieular, will probably 
lag. It is clear, moreover, that even with rapid tnereases in economic activity 
and spending on social reform programs, mos* pr sy social strains will persist. 
28. Crowth in income from petroleum exports will he only mederste, 
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pared with some of the Middle Eastern onc A‘ricon prod netion, Venezuelan oil 
will continue: to be high-cost in many markets, 2nd world sunplies of oil are 
likely to remain so plentiful as to make <'Ticult any mafor expansion of Vene- 
zuelan sales.. 
Moreover, the paves) molicies with respect to taxes, new 
concessions, and service contracts for deyelonment will tend to inhibit outside 
investment in the petroleum industry. 
29, There will almost certainly be some intensifeation of economic nationalist 
sentiment in Venezuela during the next fow years, but this will probably Fall 
short of the same tendency in many otter Latin American countries (Mexico 
or Chile, for example). 
Except in some armecis of petroleum dev slooment, 
Venezuela is likely to continue to welcome most private foreign investment so 
long as it benefits and complements local investment efforts. 
In this regard, 
the Venezuelan government may put pressure on foreign investors to undertake 
joint ventures with Venezuelan capital. 
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30. One factor conducive to the crowth of economic nationalistic feeling is 
Venezuelan resentment over US policies on ‘he imrortation of crude oil. 
Since 
prices paid in the protected US crude oi! morket are far chove world market 
prices, the Venezuelans have long desired a substantio! expansion of their sales 
in the US. 
They have asked for the same favorable treatment as that accorded 
to Canada and Mexico; over the past year or two they have come to expect 
some concession to their point of view. 
LElowever, the decision on US oil import 
policy announced in December 1965 contained no sicnificant concession to Vene- 
zuela, although the door was left open for further consideration of the subject. 
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All the nationalistic elements in Venezuela, and pzarticularly the opponents of 
the Leoni administration, wil! exploit this disappvintment, condemning alleged 
US discrimination against Venezuela and comp!aining that Venezuelan economic 
progress is subject to the whims of US Covernment policies and foreign oil 
interests, and that the Leoni administration has proved incapable of changing 
this situation. 
The AD party's public reaction has been to emphasize that 
further consideration may !ead to some US concession to Venezuela next year. 
Under continuing criticism on this issue, however, the Leoni government will 
probably be forced to become mere critica! of US policies than it has been 
hitherto, and might eventually find it netessa y ‘o tale some retaliatory action 
against US companies operating in Venezuela. 
In any case, this is an issue 
which the Venezuelans will keep raising with the 
US 
Covernment, and one 
which will continue to produce frictions in the US-Venezuela relationship. 
31. In other respects Venezuelan foreign policy is not I’kely to change much. 
The Leoni government will press te make the OAS more responsive to Latin 
American social and economic needs. 
It wil! probaly participate in LATA, 
but will seek at the same time to maintain protection for its infant industries. 
Venezuela will keep the boundary dispute with British Guiana alive, but wil! 
probably become less vociferous obout it when 
that country becomes independent 
and will almost certainly fail to achieve any settlement. 
However, if a pro- 
Communist government were to come to pewer in Guyana, Venezuela would 
become more assertive on this question. 
32, All things considered, we regard the outlook for Venezuela as reasonably 
favorable. 
It has and will continue 
to Cemonstrate for Latin America 
the 
strength and resourcefulness. of the democratic left. 
OF particular significance 
is its sturccess in resisting the immediate insurvency threat of the extreme left 
while maintaining representative institutions and pursuing the kind of reform 
programs necessary to meet the worst of its social and economic shortcomings. 
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