Embattled Chavez Taps Oil Cash In a Social, Political Experiment

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."