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BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 2013 • WEEK ONE
It is a remarkable achievement. Amid
the longest oil boom in history,
Venezuela has in many respects the
worst-performing economy in the
Americas, even though it claims to
have the world s biggest oil reserves and gets
94 per cent of its export earnings from it.
That is the legacy of 14 years of "21st-
century socialism" under the late President
Hugo Chávez. Inflation is more than 45 per
cent a year and supermarket shelves are bare
of many staple goods. Even Finance Minister
Nelson Merentes concedes that Chávez s rev-
olution has yet to achieve economic success.
Even so, oil revenues of US$90 billion a
year allow President Nicolás Maduro, Chávez s
chosen successor, the luxury of debating
whether or not to change course.
After contracting for several months, the
Venezuelan economy grew in the second
quarter. August s inflation of three per cent
was half the monthly rate in May. Nonethe-
less, most economists do not believe that a
sustainable recovery has begun.
The growth spurt appears to come from
a fiscal splurge: The budget deficit is probably
around ten per cent of GDP. A decade and
a half of hyper-regulation, including ever-
more-stringent price-and-exchange controls,
has inflicted "terrible distortions" which will
be hard to correct, even given the political
will, says José Manuel Puente of IESA, a busi-
ness school in Caracas.
Foreign exchange largely has been allocated
by government fiat since 2003. On the black
market the dollar commands more than six
Maduro's balancing act
times the official exchange rate of 6.3 bolivares. The
government handed out more hard currency in the
second quarter, which may have boosted growth.
Merentes is more pragmatic than his predecessor,
Jorge Giordani, a Utopian Marxist. Following a 32 per
cent devaluation in January, there is talk of another,
or even of floating the bolívar, though Giordani, who
is now planning minister, opposes this. Opportunists
who delight in the profits to be made from graft and
arbitrage, are happy to go along with him.
The government s main response to the scarcity of
food, and other staples such as toilet paper and tooth-
paste, is a conspiracy theory. It blames an "economic
war" waged by the United States and its "fascist" allies
in the Venezuelan opposition. On September 20 it sent
the National Guard to occupy a big toilet-paper factory.
Officials said that the "temporary" takeover was needed
to check for irregularities in production and distribu-
Maduro claimed recently that, in meetings at the
White House earlier this year, a plan was hatched to
engineer the "total collapse" of the Venezuelan economy
in October. A huge power failure affecting 18 out of
24 states on September 3 was due to sabotage, he said,
as was a 2012 refinery explosion that killed 49 people.
This month he set up an army-backed task force to
tackle the supposed plot, with the help of a hotline,
The president has produced not a scrap of evidence
for these claims, but the private sector wearily promised
After all, one business leader said, "we already face
50 to 100 inspections a month of various kinds, so
what is one more?"
While regime leaders squabble over how best to
conserve the legacy of Chávez---now referred to, North
Korean-style, as "the eternal leader"---economists
debate how long Venezuela s foreign-currency reserves
can stand the current rate of attrition. They have plum-
meted by around a quarter this year, thanks in part
to the fall in the price of gold, which makes up most
of Venezuela s reserves. Liquid reserves amount to less
than a month s imports.
There could be another US$20 billion or so in opaque,
off-budget funds, but as much as a third of that may
be earmarked for specific projects. This week Maduro
was in Beijing, where he confirmed a fresh US$5 billion
credit line, with strings attached, and US$15 billion in
long-term oil and mining investments.
The pragmatists argue that an adjustment is unavoid-
able. Maduro faces local elections on December 8,
however, which are widely viewed as a plebiscite on
his rule. The pollster IVAD recently found that two-
thirds of those it surveyed saw the economy as being
in bad shape; and they blamed the government. Less
than four per cent believed the official line about "sab-
Maduro is caught in a trap of his predecessor s mak-
ing. If he sticks to the recipes of the radicals, the econ-
omy will only worsen. If he abandons them, he risks
being labeled a reformist traitor and exacerbating fac-
tion-fighting within the regime.
For the moment he is moving cautiously in the
direction of reform, even as he bangs the revolutionary
drum and cracks down on dissent. For the president,
who recently managed to fall off a bicycle on live tel-
evision, it is a tricky balancing act.
@2013 Economist Newspaper Ltd. (Distributed
by the New York Times Syndicate.)
Nicolás Maduro, president of Venezuela
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