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Venezuela: financial chaos leading to social collapse

By Gustavo Coronel

December 4, 2004 | What international investors often read in foreign, sanitized analyses of the Venezuelan economic situation is that the country has over $20 billion in international reserves, that oil prices are very high and that the like- hood of default on the debts of the country is low. This is all true and it sounds great.

If so, what seems the problem? Well, there are plenty of problems and if potential investors do not properly take them into account, their reading of Venezuela as a country in the path to economic progress could be totally wrong.

The sad truth is that Venezuela is in almost total political, social and financial chaos. Let us start with a brief political overview.

From a promise of democratic change to a totalitarian society.

Six years ago the elected president Hugo Chávez had the clear support of the majority of Venezuelans. He had promised to eradicate corruption, to generate employment, to solve the acute tragedy of abandoned children in the streets, to fight poverty. Today, after six years of his presidency, government corruption is at an all time high, employment at an all time low, abandoned children more numerous than ever and poverty and misery are rampant in the cities and the rural areas of Venezuela. And this comes after $200 billion have entered the coffers of the government, via oil income or new national debt, which has doubled during the period. What started to be a creditable exercise in democracy turned out to be an increasingly totalitarian regime. Today, the political profile of Venezuela is much closer to those of Libya and Cuba than to those of Costa Rica or Chile. Rigid exchange controls, curtailed freedom of expression, systematic abuses of power, illegal use of public resources and persecution of the opposition clearly prevail over the customary checks and balances and the political tolerance and respect for dissidence which are typical of democratic governments.

Venezuelan society is mostly in ruins.

During the period 1999 to 2004, Venezuelan society has gone into a free fall. The middle class, that essential ingredient of progressive societies, has been decimated. Today, we are poorer, more prone to being killed by common criminals or by government thugs, deprived of our civic rights and the victims of a climate of hate created by political leaders. Empty words by the current caudillo have replaced required deeds in education and health. Physical infrastructure is rotting away. In every corner of Venezuelan cities there are beggars asking for handouts or criminals trying to take your money or your life. Venezuelans can no longer recognize this country as their own. Human dignity is being subordinated to human survival.

Financial chaos.

The enormous petroleum income coming to Venezuela during the last two years has been handled by a very mediocre and incompetent political and administrative system. The members of this system had never managed resources of any significant size. They have been suddenly faced with financial surpluses of a magnitude never experienced. Some, the more honest, have tried to apply these monies to ill-planned social programs, trying to reach the very poor. Most have seen in this immense bath of gold the opportunity of their lives to become rich, after a lifetime of poverty. Corruption in the current government of Venezuela is now approaching astronomical levels. Although corruption is difficult to prove, it is usually diagnosed on the basis of the enormous difference between income and what is done with this income. The country has received $200 billion during the presidency of Hugo Chávez, an amount that is not even remotely represented in public works or in real social improvement. The inescapable conclusion is that most of this money has been wasted and/or pilfered and/or stolen. For all practical purposes the impact on the nation is identical: lack of progress, more poverty, and more frustration.

In spite of the windfall oil income of the last years and of the obscene new indebtedness, the administration of Hugo Chávez has systematically shown huge fiscal deficits in their year-to-year budgets. For 2005 the fiscal deficit could run to almost 6% of the GDP. In addition to this deficit, the nation will have to face increasing payments of the national debt, which will bring this deficit to 8% of the GDP. How will the deficit be covered? Amazingly enough, with more debt! According to economist Miguel Angel Santos, from IESA (the best Venezuelan business school), borrowing will be dedicated not only to cover old debt but also to finance current expenditure. This will increase net national debt by an additional 4% of GDP.

According to Santos the 2005 budget will increase fiscal fragility, will promote more indebtness, stimulate inflation and inhibit growth. The State will essentially be the only sector investing, although 80% of the national budget will be dedicated to covering the costs of the increasing bureaucracy.

In the six years under this government the Venezuelan GDP has decreased to the levels of almost 15 years ago. Accumulated inflation is over 200%. 7.6 million Venezuelans are either unemployed or under-employed (working as street peddlers). Foreign exchange has moved from Bolivar's 565 to the dollar in 1998 to a controlled Bolivar's 1920 to the dollar in 2004 (although the black market is at Bolivar's 2500 to the dollar). This represents a devaluation of 250% to 400% depending on which exchange rate is considered.

Financial collapse equals social collapse.

This collapse in economic conditions has produced a social collapse The studies conducted by the Andres Bello Catholic University have established that, in 1978, poverty affected 23% of the population but that today poverty includes more than 70% of the population. Abandoned street children in 1992 numbered 2500 according to UNICEF, the United Nations Fund for Infancy. Today this organization reports four times as many Venezuelan children as beggars. Our own institutions dealing with children (INAM) report more than 200,000 Venezuelan street children engaged in thievery and prostitution and more than one million children as street peddlers. The Economic Commission for Latin America, ECLAC, reports that Venezuela was the only Latin American country in which hunger increased, findings also reinforced by the UNDP. A recent report by the Venezuelan chapter of the Club of Rome indicates that new housing built by the government has decreased from 61,000 units in 1998 to less than 15,000 in 2002. Four times more Venezuelans were murdered in 2003, as compared to 1998. One hundred cars are stolen everyday in the streets of the country.

Lost Generations.

The Venezuelan political, social and financial chaos generated during the last six years has produced and is producing the loss of entire generations. Certainly two, possibly three Venezuelan generations will be sacrificed to the political experiment known as the "bolivarian revolution." This is a crime without parallel in Venezuelan history, coming at a time in which the whole region is trying to push forward and leave behind many years of inferiority complexes and obsolete political ideologies. It is precisely at this moment when a militaristic regime has taken over political power in our country and is forcing the country backwards.

This regime should be isolated.

In fact, it is being isolated. Although it has immense financial resources at its disposal to buy temporary loyalties and, although it has been able to recruit a group of foreign fellow travelers, from Saramago to Ramonet, who sing its praises mostly because it opposes the U. S., the Venezuelan militaristic regime is progressively losing the battle of international public opinion. Hugo Chávez is now seen as the new and richest member of a club of political outcasts, from Castro to Gahdaffi, from Hussein to Mugabe. His clumsy attempts at diplomatic strategy have promoted chaos wherever he goes. He is now considered a visitor to be avoided at all costs, although oil money is still coveted by those who laugh at him behind his back.

The people of Venezuela are suffering greatly under the inept and populist regime of Hugo Chávez. Our Venezuelan tragedy might not be as spectacular as the ones in Sudan or Palestine tragedies but is no less real. It is equally dramatic, since it involves the destruction of a country that was, only two decades ago, in the threshold of becoming a member of the first world.



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