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Hugo Chavez at the presidential palace on Sunday after winning re-election for a fourth term. (Photo: Prensa Presidencial)
Tuesday, October 9, 2012
Commentary

Venezuela: Gloomy Outlook


President Chavez’ re-election means more mismanagement.

BY LATINVEX EDITORS

With Sunday’s re-election of Hugo Chavez as Venezuela’s president, the South American country is facing a gloomy and uncertain future.

First, the gloom: A Latinvex analysis of new forecasts from the International Monetary Fund shows that Venezuela will have Latin America’s highest inflation the next five years while having the second-lowest economic growth rate.

Normally, inflation is closely linked with GDP growth. However, in the case of Venezuela massive public spending combined with inefficient price controls have spurred double-digit inflation.

Meanwhile, constant government attacks against, and restrictions of, the private sector – coupled with a dramatic increase in state controls -- have led to a near-halt in non-public economic activity. Venezuela’s economy is now more than ever dependent on oil exports – contrary to Chavez’ pledge before he became president in 1999 – leading to a major impact on GDP growth when the international price of oil rises or drops.

The increased state role in the economy has led to a significant growth of corruption – also violating one of Chavez’ key pledges before he became president. Venezuela is now Latin America’s most corrupt country after Haiti, according to Transparency International.

In the 13 years he has ruled Venezuela, Chavez has clearly proven to be incapable of managing the economy properly. While many Venezuelans have praised his increased social spending, the fact is that those initiatives could have come about while combining an efficient management of the economy.

Brazil is a clear example of that. Both previous president Luiz Inácio Lula da Silva and current president Dilma Rousseff have combined higher social spending with a relatively stable macro-economic environment. Inflation heated up in Brazil in recent years due to too high public spending, but Rousseff has made an effort at reining it in. Meanwhile, the economy has started to slow down, but will still be higher than the Latin American average the next five years, according to the Latinvex analysis.

Chavez’ policies of nationalizations and expropriations have replaced efficient private companies with inefficient state ones. Take EDC, the largest electricity company in Venezuela that Chavez nationalized five years ago (after paying US-based AES $740 million in compensation). EDC now suffers from frequent power outages. Meanwhile, CANTV – the top telecom operator that Chavez also nationalized in 2007 – now suffers from inefficiency and corruption.

Chavez’ politicization of state oil company PDVSA has also been a complete failure, resulting in disastrous neglect in maintenance. The latest case in point: the August explosion at the Amuay refinery (the largest in Venezuela) that resulted in 39 fatalities.

SURGING CRIME

Chavez has also utterly failed to confront a surging crime wave. In 1998 – the year before Chavez became president – Venezuela’s homicide rate stood at 19.4 per 100,000 inhabitants. Last year it reached 50 per 100,000 inhabitants, according to official figures. NGOs like Observatorio de Violencia place the rate at 67 per 100,000 inhabitants. Independent of which figure is used, Venezuela now has the highest murder rate in South America and the third-highest in Latin America after Honduras and El Salvador, according to a Latinvex analysis of data from the United Nations Office on Drugs and Crime.

The legal environment has also been weakened under Chavez. For example, Venezuela's judicial independence is the worst in Latin America and its police force is seen as the second-worst in the region, according to the World Economic Forum. As a result, Venezuela ranks last on the Law & Order Index from Latinvex.

Instead of drawing any lessons from his failures, Chavez is expected to implement further radical policies aimed at boosting the state role over the economy.

As Venezuelan oil veteran Gustavo Coronel wrote in Latinvex last week: “Under Mr. Chavez the nation would further travel the road to economic collapse and this would eventually bring about political collapse.”

Then there’s the uncertainty: Chavez has been suffering from cancer for more than a year. In typical Soviet style, he has refused to divulge any details beyond confirming his three operations in Cuba. He claims to be free of cancer today, but many experts doubt that and instead believe the Venezuelan president could die soon.

That will lead to uncertainty as Chavez has failed to name a proper successor. The current vice president has little support among Chavistas.

“Like all populist leaders President Chavez has no successor in sight," Beatrice Rangel, who served as Chief of Staff and Minister of the Secretariat during the Presidency of Carlos Andres Perez, told Latinvex recently. "As a matter of fact the essence of populism is to have a charismatic leader that continuously mobilizes the populations and on whom all political processes depend so as to reduce the likelihood of institutionalization."

If Chavez dies, new elections have to be held within 30 days and opposition leader Henrique Capriles (who lost Sunday’s elections to Chavez) will clearly be the most likely winner.

However, he would then have to face massive opposition from Chavistas who now control nearly all parts of Venezuelan life. Yet, a Capriles presidency would clearly be better than Chavez’ record of mismanagement and corruption.

Whatever happens, Venezuela is facing gloom and uncertainty ahead.


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