Venezuela's economy sputters -- but Chavez still rides high

Miami Herald
August 26, 1999

CARACAS -- In one of the most remarkable paradoxes in Latin American politics today, President Hugo Chavez remains highly popular even as the economy tumbles into dramatic recession.

Economic activity is at a near standstill. Joblessness hovers at record levels. Already this year, some 800 companies have declared bankruptcy.

But even as the economy sputters, the charismatic former army paratrooper has so profoundly shaken up Venezuela that many of his nation's 24 million people feel they can await economic recovery until a top-to-bottom political reform produces results. A Datanalisis opinion survey earlier this month gave Chavez 74 percent approval levels a full six months after taking office.

The support for Chavez underscores the contempt many Venezuelans hold for a moribund two-party political system that has squandered billions of dollars in oil wealth since military dictatorship gave way to democracy four decades ago.

''We have to give him a chance,'' said Erasmo Rodriguez, a 64-year-old carpenter in Valencia, 100 miles west of Caracas. ''If we gave the traditional parties 40 years, we can't give him just one year.''

''This is something new in the democratic experience in Latin America,'' said Luis Vicente Leon, one of the chiefs of Datanalisis.

A forced respite

How long poor people may support Chavez without significant economic recovery is yet to be seen. But for now, the nation has entered a forced respite as a 131-seat Constituent Assembly draws up a new constitution. Chavez supporters control the Assembly and vow to overturn Venezuela's judicial and political systems, provoking deep distress in the business community as it awaits new rules.

The Assembly began its work Aug. 3 and legally has six months to draft a new charter, but Chavez has asked for the job to be done in three months.

Declaring itself all-powerful, the Assembly has simply rolled over opponents such as the Congress and the courts.

Supreme Court President Cecilia Sosa quit her post this week, saying the autonomy of the judicial branch had been violated by the Assembly's move to sack as many as 2,000 judges and court workers.

And on Wednesday, the Assembly declared legislative emergency. The move takes away Congress' right to pass laws and limits its duties to a narrow range of activities such as budget oversight.

Congressional leaders said they would cut short a legislative recess and reconvene on Friday to discuss the threats to the legislature's existence. But Assembly president Luis Miquilena said the panel would not permit the opposition-controlled Congress to convene.

Oil markets are giving Chavez a breather as his supporters overhaul the political system. Since Chavez took office Feb. 2, crude prices have nearly doubled, from $9 a barrel to roughly $18 today.

Even so, Venezuela, the world's third largest oil exporter, is mired in deep recession. Analysts forecast that 1999 economic activity will shrink at least 6 percent, and maybe more.

''This is an enigma. For the first time, oil prices are high and the economy stinks,'' said Teodoro Petkoff, a former planning minister. ''The drop in the economy is due to uncertainty and lack of confidence caused by the political situation.''

The slowdown is little short of extreme.

''Nothing is happening here. There's no activity. Electricity consumption is down. Food imports are down,'' said Ricardo Penfold, a vice president at Santander Investment.

A senior editor at a major local newspaper said: ''There's such inactivity in the country that there's hardly any corruption. It is totally stalled.''

Some 600,000 Venezuelans have been thrown out of work. Unemployment has soared to over 17 percent.

Troops pitch in

While the economy goes into meltdown, the Chavez government has deployed some 30,000 troops in civic action projects highly visible to the nearly 80 percent of Venezuelans living in poverty. In recent months, two million children were vaccinated against polio, and troops have set up 702 occasional street markets for farmers to sell products at prices up to 40 percent below stores, Chavez says. Guarding a fatter checkbook from oil revenues, Chavez also announced a $1 billion investment program for infrastructure improvement.

Such moves leave analysts with sharply differing views on Chavez, with some accusing the onetime army paratroop commander of installing a mediocre economic team and postponing a day of economic reckoning.

''With his rhetoric and his showmanship, he's been providing Venezuelans with a circus atmosphere,'' said Herbert Koeneke of Veneconomia, a consulting firm. His promises that the nation will boom once the political system is reformed ''create a lot of unreal hopes.''

Expenditures lower

Other economists said Chavez has proven remarkably orthodox, given the nightmare scenarios that once hovered around him.

''People were talking about exchange controls, price controls and huge salary increases to the public sector,'' said Penfold. None of that came about. ''Chavez on the fiscal side has been pretty responsible.''

Real government expenditures run 20 percent below last year. Moreover, Chavez has enacted tax reform, talked up privatizing the aluminum and power sectors, pushed through one of the most liberal natural gas investment laws in the hemisphere and kept government wages in check.

''If you took Chavez away, if [former President Rafael] Caldera were saying all of this, I think this market would be booming,'' Penfold said.

In another paradox, pollsters say Chavez's popularity is high even as confidence among business owners could hardly be lower.

Leon, of Datanalisis, said 72 percent of industrialists have reduced or frozen spending, and 76 percent view government economic strategy as negative.

''Basically, I think fears in the business community are totally overblown,'' Leon said, adding that likely constitutional reforms appear ''rational and democratic.''

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