Despite its vast oil riches, there are indications that Venezuela’s economy is coming unglued. Many essential commodities are in short supply, inflation is rising rapidly, and, most alarmingly, the country’s currency, the bolivar (at right), is in free fall on world markets.
Much of the blame for deteriorating conditions lies at the feet of El Presidente Hugo Chavez.
While the country earns record proceeds from oil exports, consumers face shortages of meat, flour and cooking oil. Annual inflation has risen to 16 per cent, the highest in Latin America, as Mr. Chavez tripled government spending in four years.
Exxon Mobil Corp. and ConocoPhillips Co. are pulling out after Mr. Chavez demanded they cede control of joint venture projects.
The currency, the bolivar, has tumbled 30 per cent this year to 4,850 bolivars a U.S. dollar on the black market, the only place it trades freely because of government controls on foreign exchange. That's less than half the official rate of 2,150 set in 2005. Mr. Chavez may have to devalue the bolivar to reduce the gap and increase oil proceeds that make up half the state's revenue.
Mr Chavez is extremely reluctant to devalue because he views that as an admission that his economic policies have failed. Yet, a devaluation would substantially increase Venezuela’s oil revenues, thus supporting generous social welfare programmes, because world oil prices are set in US dollars.
The foreign exchange regulations are part of the controls that Mr. Chavez, 53, has created in his "march to socialism." The government sets retail prices on hundreds of consumer products and fixes both the maximum rate at which banks can lend and the minimum interest they can pay depositors.
Such economic and financial micro-management is typical of socialist megalomaniacs. All the oil money in the world could not save Venezuela from the ill-effects of such folly. The only question is: How bad will it get? Zimbabwe, anyone?
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