The fall, and fall, and fall of Venezuelan socialism

Twelve years into his Bolivarian Revolution, paratrooper president Hugo Chavez is heading for a crash landing


So now Venezuela’s President Chavez wants the gold. After twelve years in power, the former paratrooper has decided to repatriate the country’s 211 tonnes of precious metal in what looks like another desperate throw of the dice for arguably South America’s most vociferous leader.

Since Chavez won power in 1998 and launched his socialist revolution, the economy of Venezuela – and, inevitably, the long-term prospects of its 29 million citizens – has steadily deteriorated under a textbook display of the kind of populist economics that bedevilled much of the region for most of last century.

Chavez has a rec-ord of seizing Venezuela’s plum assets, starting with its vast oil sector. The president ran Big Oil out of town under the banner of anti-imperialism, and followed that by kicking the IMF and World Bank out of Caracas in 2007, saying Venezuela no longer wanted institutions “dominated by US imperialism.”

The socialist revolution has unravelled rapidly in the last few years, according to a legion of unbiased observers. Venezuela’s economic contraction is easily the biggest in the region and its recovery will be “delayed and weak,” according to the IMF (which still analyses its performance from afar). While its neighbours are growing at around four percent, Venezuela is the “black sheep” of the region, the IMF says.

With the help of his weekly television programme, Alo Presidente, in which he sings, dances and delivers interminable Fidel Castro-like speeches, Chavez bats away the bad news. According to the central bank, the economy should grow by around two percent this year while finance minister Jorge Giordani insists “it is the IMF that is in crisis.”

Objective statistics contradict him. Take the current inflation rate of 33 percent (29.7 percent last year) and heading higher. Chavez’s social revolution has managed the extraordinary feat of achieving runaway inflation in the middle of a deep recession at considerable cost to ordinary households. The government’s response smacks of Robert Mugabe’s inflation-fighting strategy in Zimbabwe – it has threatened to seize companies that raise prices above designated limits.

In his 12 years, Chavez has done little or nothing for the economy. It is chronically imbalanced, with a top-heavy dependence on oil accounting for around 95 percent of all export income, while manufacturing exports are insignificant. External debt as a share of exports – a measure of a country’s ability to pay its way in the world – is a catastrophic 235 percent, and rising. You might at least expect agriculture to be doing well as an economic staple, but it remains woefully underdeveloped.

As a place to do business, Venezuela has become a pariah because of its disregard for commercial property rights. It now ranks 177th out of 183 in the World Bank’s ‘Ease of Doing Business’ league table, and unsurprisingly there’s been an exodus of foreign capital. International reserves are falling rapidly and foreign debt is rising, while last year’s devaluation of the bolivar doesn’t seem to have helped much. Earlier this year, Morgan Stanley found that “on the most relevant fundamentals Venezuela appears to be near a tipping point” in its debt.

However, echoing earlier South American leaders, some of them also former army men, the ex-paratrooper insists he is the saviour of the poor and the socialist revolution just needs more time to work.