The New York Times
September 2, 1998

          Mistakes Hobble Venezuelan Economy, Experts Say


               ARACAS, Venezuela -- With investment holdings flying out of this
               country, international market analysts widely agree that Venezuela's
          economy has been crippled by an overvalued currency, government
          interference in monetary policy and irresponsible spending that relies too
          heavily on oil revenues.

          Many Venezuelans, however, beg to disagree.

          Their political mood seems to be swinging in precisely the opposite
          direction, with an overwhelming majority apparently convinced that the oil
          wealth should guarantee decent salaries, government services, job
          protection and retirement benefits. Instead, with 80 percent of the
          population said to be living in poverty, the country faces broad suspicions
          of market changes, widely described here as "capitalasmo salvaje," or
          "savage capitalism."

          The leading candidate for the presidency by a wide margin is Hugo
          Chávez Frías, 44, a populist retired army colonel who led a coup attempt
          against President Carlos Andrés Pérez in 1992. Andrés Pérez was the
          architect of a short-lived stab at free-market changes in the early 1990's.

          Colonel Chávez is leading the polls with 46 percent, with his nearest rival,
          Henrique Salas Römer, trailing at 27 percent, according to a polling
          service, Datanálisis.

          Colonel Chávez, trading in his uniform and red beret for business suits as
          he campaigns, has raised the specter of protectionist barriers to foreign
          trade, hinted at the possibilities of a one- or two-year moratorium on debt
          payments and pledged to review concessions that the state has granted
          foreign oil companies.

          Those measures have been widely seen as hostile to foreign investors.

          Colonel Chávez's populist message, faulting government corruption for
          siphoning 15 percent of public revenues, resonates with Venezuelans who
          are hard pressed to reconcile the petroleum wealth with the fiscal
          difficulties. Colonel Chávez has called for a halt to privatization of state
          assets, at least, he says, until the country has some assurance that the
          revenues from the sales of assets are going to the national budget rather
          than the personal accounts of that corrupt officials have in Miami.

          "He's a nationalist," said Omar Lambaia, 53, a retired military
          photographer who drives a taxicab.

          Lambaia retired 11 years ago and collects a pension equal to the full
          salary of an officer on active duty, but he said the Government was
          shortchanging him.

          "Of course," Lambaia said, "I'm democratic. But when you see that
          democracy is not doing anything for your country, that it's destroying the
          country, you become a nationalist."

          A survey by a poll analyst, Alfredo Keller, found that more than 85
          percent of Venezuelans felt cheated out of the benefits of the oil wealth.

          "It's a mining-boom-town mentality that weakens the notion that one's
          well-being is tied to personal effort," said Robert Bottome, publisher of a
          newsletter, Veneconomy.

          Because of its failure to reduce the Civil Service system and revise its
          pension system, the Government has essentially used the revenues it
          gained during earlier years of high oil prices to pay the salaries of workers
          who are not really needed. More than 30 percent of the government
          budget goes to pay off debt, said Hugo Faría, a consultant at the Institute
          of Advanced Studies in Business.

          The price of oil, responsible for nearly half the country's revenues, has
          dropped a third in recent months, taking the bottom out of the economy.
          The stock market has dropped more than 70 percent this year.

          Analysts say the Venezuelan bolívar is overvalued by up to 40 percent.
          Although the Government has repeatedly denied plans to devalue the
          bolívar, expectations of a devaluation persist. That is forcing the
          Government to spend down international reserves to $13 billion to protect
          the bolívar and to pump up interest rates for short-term bonds to borrow
          additional money.

          At least $4.1 billion in short-term bond is due in coming months, further
          draining dollar reserves.

          "The market is jumping ahead so fast that nobody is willing to hold
          bolívars, because they don't know when the devaluation will come," said

          Lending rates to consumers are hovering at 100 percent a year, and even
          at those rates the terms are punishing. Banks demand that company
          presidents put up their houses and cars as collateral for business loans.

          Yesterday, Standard & Poor revised its rating of Venezuela's financial
          prospects downward, to negative from stable. The service cited
          resistance from the presidency to the man in the street to "essential
          market-oriented reforms needed to stabilize the economy."

          The agency said that fixed costs like debt service, Social Security and
          personnel took up 75 percent of Government spending and that the main
          source of government financing, oil revenues, was subject to shifts on the
          world market. The agency predicted that the Venezuelan budget deficit
          would reach 4 percent of the gross domestic product.