Venezuela's economy: On the breadline-- The cost of political incompetence

Jun 12th 2003 | CARACAS From <a href=www.economist.com>The Economist print edition

BY ANY standard, it is a staggering figure: Venezuela's economy contracted by 29% in the first quarter, compared with the same period last year. That spells hardship for millions of Venezuelans. According to Datanálisis, a market-research firm, 72% of households say they have cut back on food; only half now eat three meals a day. Unemployment stands at 20%. Of those officially counted as employed, more than half work in the informal economy.

Much of the GDP shrinkage is the result of a two-month general strike, a failed bid by the opposition to oust President Hugo Chávez. This shut down the vital oil industry in December and January, just when prices were high. Oil output is now almost back to normal. But the economy is not: many forecasters expect a decline of 12% or more for the year.

In early February, Mr Chávez, a populist former army officer, imposed foreign-exchange controls. Since then, the government has approved the sale of just over $100m; in normal times, business would demand that sum every three days. On the black market, dollars now cost 50% more than the official rate. The dollar shortage has also prompted a bizarre stockmarket boom: shares in CANTV, the telephone company, which is also quoted in New York, rose by 68% in May, as investors realised they could swap them for a dollar-denominated American depository receipt, and thus for dollars.

Officials admit that the agency set up to administer the controls was incompetent; it was recently placed in the charge of the Finance Ministry. But opponents see the dollar shortage as a deliberate ploy to strangle what is left of Venezuela's private sector. So far, the dollar drought has not provoked serious shortages of staple goods, though it may yet do so. But what it has done is to continue Venezuela's deindustrialisation—one of Mr Chávez's main gifts to his country. Six out of ten of the manufacturing businesses in existence when the president was first elected in 1998 have since shut down, according to the industrialists' association.

Mr Chávez has blamed the economic catastrophe on the opposition strike. So far, that has worked: one Venezuelan in three still supports the president. But as the strike recedes, three out of four respondents now tell pollsters that the government is primarily to blame for the economy's collapse. The polls also suggest that Mr Chávez would lose a referendum on his presidency, which under the constitution can take place any time after August.

There are also signs that the president may lose his slim majority in the National Assembly. Pro-government legislators held an extraordinary session in a public park last week. They voted to change the parliament's rules, so that the opposition could no longer hold up pending laws which would augment the executive's already wide powers. But in a full session of the assembly this week, they could not muster the votes to ratify the rule changes.

Eventually, his economic mismanagement may catch up with Mr Chávez, eroding the loyalty of all but his most fanatical supporters. That ought to spell the end of his regime. But not necessarily. The opposition has won few friends among the growing number of uncommitted Venezuelans, who show little enthusiasm for politicians of any stripe.