Rory Carrol's latest Chavez hit piece ahead of the presidential election carries the utterly loaded headline 'Strongman's last stand'. Clearly there are huge problems relating to security, crime and public infrastructure in the country - I can't comment on these as I have not been there since 2006. I don't believe you can ever know what is really happening in a country from thousands of miles away.
A murder rate of 15,000+ is terrifying. I've encountered criminals in uniform myself while in Caracas - eyes of killers and looking for a chance to steal. This is an old problem that seems to have got worse, perhaps fuelled by political polarisation and hostility in certain state institutions to the government. The truth is there are no utopias in the world, whatever the political colour of a regime. What is certain is that the West would like to see the back of Chavez - but his loyal supporters are likely to deny that outcome come election day (if polls are to be believed).
Trying to summarise the situation is difficult for any commentator but at least this one - who comments on Carrol's piece - doesn't rely on anecdotes and focuses on economic data, which is not as bad as Carrol paints:
Carrol paints a rather controversial and very partial view of the Venezuelan economy. He fails to grasp some of the complexities involved in an analysis of its problems and of its benefits.
Let us begin with the 2003 oil strike, which caused an extremely severe recession, with a loss of 29 percent of GDP. However, even after the strike was over, analysts predicted a dire future and a slow, difficult recovery. International Monetary Fund (IMF) forecasts repeatedly underestimated GDP growth by a gigantic 10.6, 6.8, and 5.8 percentage points for the years 2004-2006.1 Instead, the recovery was very rapid and the economy grew at a record pace over the next five years, with real GDP nearly doubling from the end of the oil strike (first quarter 2003) through the fourth quarter of 2008.
When oil prices collapsed in the fourth quarter of 2008, many analysts concluded that Venezuela’s day of reckoning had finally come. A recession began in the first quarter of 2009, and forecasts remained dire well beyond the beginning of the recovery in the second quarter of 2010. In 2011, the Venezuelan economy defied most forecasts by growing 4.2 percent, and is up 5.6 percent for the first half of 2012.
Venezuela’s economy went into recession in the first quarter of 2009, which lasted for five quarters, until the second quarter of 2010. International oil prices had dropped precipitously in the fourth quarter of 2008, falling by 50 percent (from $118 to $58 a barrel). Although at first glance the recession appears as though it was part of an inevitable “oil boom and bust,” this was not the case. Although most of the countries in the Western Hemisphere experienced recessions during the 2008- 2009 world economic crisis and recession, many did not, and it was possible to mitigate the recession or even avoid it altogether with counter-cyclical macroeconomic policy. Venezuela was in a position to do so, since it had a low public debt (and most importantly, low foreign public debt) when oil prices began to fall, and could have borrowed and spent as much as necessary in order to keep the economy growing.
But government spending was pro-cyclical as the economy slowed and fell into recession, and then during the recession. There was a jump in spending in the second quarter of 2010, as the economy emerged from recession. In 2011, government spending boosted and consolidated the recovery.
The Venezuelan economy has now grown for nine consecutive quarters – beginning with the second quarter of 2010; and the current quarter, which ends at the end of September, and will also show positive growth. Although this recovery has gotten a boost from increased government spending, it has been relatively broad-based throughout various sectors. In 2011, utilities, construction, transportation, commerce and repairs, communications, finance and insurance, and mining all grew faster than overall GDP (4.2 percent). Manufacturing, which makes up about 14 percent of GDP, grew somewhat less, at 3.8 percent.
For 2012, the economy grew 5.6 percent in the first half of the year, as compared with the first half of 2011. Here growth was led by construction, which expanded by 22.5 percent over the first half of 2011, due to the government’s program to build housing and alleviate a national housing shortage. In 2011, there were about 147,000 houses built under this program, with two-thirds built by the public sector and one-third from the private sector. Some 200,000 are planned for this year, with over 50 percent of these having been built by September.2 These are large numbers relative to Venezuela’s population; a comparable number for Venezuela’s 2011 construction in the U.S. would be more than 1.6 million homes, or two and half times the number of houses actually built in the U.S. in that year.
Venezuela still has a relatively low debt burden. The most common measure of debt is the ratio of debt to GDP.3 By this measure, the IMF reports Venezuela’s public debt for 2011 as 45.5 percent of GDP.4 Central government debt is just 25.1 percent of GDP; the IMF number includes other public entities, most importantly PDVSA, the national oil company. This is still a relatively low level of public debt – the European Union, for example, has a debt of about 82.5 percent of GDP.
Finally, this growth has inevitably led to a large reduction in poverty and extreme poverty, as well as numerous other gains in health care and education due to increases in social spending. And as high as Venezuela’s 22 percent annual rate of inflation has been (since 1998), it was much worse (34 percent) in the pre-Chávez years.
In short - I do not feel that Rory is much of an economist. For you to have a broader view of the positives and negatives of the Venezuelan economy, one must get into the nitty gritty. This is a shame, as a really productive discussion of this issue would be beneficial in wrenching us from the shackles of monetarist dogma.
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