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Venezuela is Crumbling

Economic misery in Hugo’s populist paradise.

12:00 AM, May 14, 2010 • By JAIME DAREMBLUM
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Recent weeks have brought more depressing economic news from Venezuela, where populist leader Hugo Chávez seems intent on destroying not only democracy but also the last remaining vestiges of private enterprise.

Venezuela is Crumbling

On April 21, the Latin Business Chronicle predicted that Venezuela would post the world’s highest inflation rate in 2010, ahead of even the war-torn Democratic Republic of Congo.

On May 5, the United Nations Economic Commission for Latin America and the Caribbean reported that foreign direct investment (FDI) in Venezuela dropped from $349 million in 2008 to negative $3.1 billion last year, “mainly as a result of nationalizations.” In other words, the Bolivarian Republic experienced a net FDI outflow of $3.1 billion in 2009.

On May 7, the Venezuelan central bank released data showing that consumer prices rose by 5.2 percent from March to April. As Bloomberg News noted, this represented the largest monthly increase since 2003. Meanwhile, the annual inflation rate hit nearly 32 percent.

On May 11, the Chávez-controlled National Assembly introduced legislation designed to clamp down on currency trading and strengthen the bolívar, Venezuela’s national monetary unit. “This is a very negative measure for the Venezuelan economy,” Barclays Capital economist Alejandro Grisanti told Dow Jones. “It will increase the pressure on prices and will deepen the contraction of the economy.” In January, Chávez devalued the bolívar in order to facilitate greater social spending. Since then, the currency has plummeted, making Venezuela’s already dire inflation problem even worse.

The Bolivarian Republic is gradually crumbling, and Chávez seems intent on speeding up the process. According to International Monetary Fund projections, Venezuela is the only major Latin American country that will experience an economic contraction in 2010. Inflation has reached staggering levels: As Bancaribe economist Adrian Aguirre told Bloomberg News after Venezuela’s central bank unveiled the April price data, “The fact that food prices rose by more than 11 percent is something we’ve never seen in the last decade.” Venezuelan importers are also grumbling about the new two-tiered exchange-rate regime, which was implemented as part of the devaluation back in January. The higher rate (4.3 bolívares per dollar) applies to “non-essential” imported goods. But the Associated Press reports that “the government has not distributed enough dollars at the official rate to satisfy demand, forcing close to half of Venezuela’s importers to buy much more expensive greenbacks on the black market.”

Venezuela’s economic misery has inflamed anti-Chávez sentiment and fueled large-scale protests. Ordinary Venezuelans are mad about food and water shortages, power outages, and surging crime rates. There are national legislative elections scheduled for September; unfortunately, many Venezuelans fear those elections will never take place. It’s possible that Chávez will manufacture a phony “security crisis” and suspend the voting indefinitely. It’s also possible that he will permit the elections to go forward but disqualify certain candidates from running or preemptively arrest them on trumped-up charges.

If the elections are canceled, the last remnants of Venezuelan democracy will collapse. Opponents of Chávez may eventually decide they have no peaceful choice. I sincerely hope this scenario does not come to pass. It is still possible that Chávez can be defeated at the ballot box—but only if he allows the elections to proceed. The Venezuelan strongman has been organizing regime-backed militias to subjugate the democratic opposition and protect his socialist revolution. In essence, he is creating his own version of Iran’s Revolutionary Guards (who are committed to defending the theocratic dictatorship in Tehran).

Chávez’s paramilitary supporters effectively serve as a private government security force. They seek to intimidate the likes of former Venezuelan defense minister Raúl Baduel, who was recently sentenced to nearly eight years in prison. Baduel has been sitting in jail since 2009 as punishment for turning against the regime. Earlier this year, he published a letter with several other former Chávez loyalists calling on the Venezuelan president to resign. The letter condemned Chávez as “totalitarian” and argued that he “has neither moral nor material authority to rule the country, since he can not meet people’s demands satisfactorily.”

With inflation and crime spiraling out of control, more and more Venezuelans are coming to that conclusion. Rather than address their concerns, Chávez is building an enormous militia movement to squash the unrest. As the September election date draws closer, the paramilitaries will seek to terrorize opposition candidates and discourage them from campaigning. There is a very real threat of bloody street violence. Is the international community paying attention?

Jaime Daremblum, who served as Costa Rica’s ambassador to the United States from 1998 to 2004, is director of the Center for Latin American Studies at the Hudson Institute. 

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