Mistakes Hobble Venezuelan Economy, Experts Say
By DIANA JEAN SCHEMO
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.
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
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.
is leading the polls with 46 percent, with his nearest rival,
Henrique Salas Römer, trailing at 27 percent, according to a polling
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.
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.
11 years ago and collects a pension equal to the full
salary of an officer on active duty, but he said the Government was
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
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.
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
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
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.
& 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.