article on Venezuela in Spain’s La Vanguardia by Joaquim Ibarz, he
definitely did his homework.
Poverty swallows Chavez despite the waste of petrodollars
President Hugo Chavez has one
hundred ideas a day. Some 97 are discarded as impractical, but the three
remaining ones can cost Venezuela
a lot of money, since they are aimed only at mediatic and political
repercussion, instead of economic return.
Hugo Chavez finances poverty
so that everyone depends on him a Venezuelan entrepreneur of asturian origin, explains in a few words
the orientation of the revolutionary regime that is being implemented in
gradual fashion in Venezuela.
Financing poverty, without
creating wealth, is very costly to a State that in six years has not only spent
US$ 200 billion that have been received thanks to high oil prices, but has also
increased external debt (from US$ 22 billion went to US$ 27 billion) and
multiplied internal debt (In six years, from US$ 1.069 billion it became US$
13.5 billion). One has to add US$ 1 billion in a euro bond and a new issue of
some US$ 1.5 billion.
To prevent that the incumbent
President dilapidate oil income, the Macroeconomic Stabilization Find was
created destined to generate savings when the price of oil was over that one
fixed in the national budget. The differential would be reserved for when the
price went down; it was like insurance for junctures with fiscal deficits.
Chavez no only eliminated the Fund, but as if it were petty cash, he grabbed
the US$ 7 billion that had been saved up to 2002.
The increase in debt has
taken place in the middle of an oil boom. According to analyst Gustavo Garcia
Osio, what is happening with Chavez is the same that happened with the
management by Carlos Andres Perez and in the Government of Luis Herrera, when
public debt was multiplied in the middle of a spectacular rise in hydrocarbons,
whose bad consequences Venezuelans know well. When the price of oil moderated,
the debt became impossible to pay, which brought successive devaluations of the
Bolivar and a deterioration of public expenditures.
Chavez is repeating the same
errors of Perez and Luis Herrera, Chavez is a good exponent of the past he
denigrates so much, says to La Vanguardia, economist Hugo Faria. According to this
Professor, Chavez shows great fiscal irresponsibility to finance the uncontainable
public expenditures, not only with petrodollars and an increase in debt, but
also with successive devaluations. The curious thing is that Chavez devalues
while his mentor Fidel Castro, thanks to the billion dollars that he receives
in cheap oil, revaluates the peso. In all of America, local currencies
are revaluing with respect to the dollar, except in Venezuela,
No country has managed to reduce poverty without sustained economic growth points out Farias.
A large part of today income is wasted on current expenditures looking for
electoral yields. Chavez said it very clearly: the money has to be spent with
political criteria, not an economic one. The purchase of Argentine bonds for
US$ 500 million is not advisable from an economic point of view, but it is from
a political point of view. Although the income from the petrodollars is huge,
the expenses are even bigger. Populism is expensive and there are many
interests, both internal and external, that have to be covered. Only part of
the expenditures goes through the official controls, the rest goes via parallel
paths, without much supervision.
The budget of the Ministry of Defense, which is higher than the Education one,
was increased with the boundless purchase of war material. Military
expenditures are shooting through the roof with the creation of a body of
reserves which is the equivalent to a parallel army, which must be composed of
hundreds of thousands of people. In the same manner, in the last few months he
has created five new Ministries, with the corresponding increase in payrolls.
The National Institute for Statistics (INE) has registered that between
February 2004 and February 2005 the public sector hired in the same period
227.201 workers, while the private sector only added 24.069 workers to its
Even though Chavez
devotes a good part of the oil income to assistance plans destined to those
that have the least, during his term, poverty has increased by 10.2 percentage
points. According to the President of INE, Elia Eljuri, when Chavez assumed the
Presidency the poverty index was 42.8%, while at the end of 2004 it has
increased to 53% (Non Government organizations raise it to 80% with 50% of the
population in extreme poverty)
Poverty is swallowing Chavez; he thought poverty could be reduced with subsidies and giving away money,
but only creating wealth can you combat poverty in a sustainable way. Chavez is
not concerned with generating growth. Because he thinks wealth is badly
distributed, he looks to eliminate inequality making everyone poor as
manager Gustavo Nahmens tells us.
Creating wealth is not Chavez€™ priority. On the contrary, he seems intent in
destroying it. Instead of backing private initiatives, he harasses the private
sector, who he considers his enemy for having signed in favor of the recall
referendum. The populist policies of the Government, together with the lack of
confidence in the future of the country and to a tax policy that forces
companies to pay the VAT ahead of time-on the basis of measures set by the
State-provoked the fall of investment and the bankruptcy of many firms.
According to data from Fedecamaras, in the last six years half the private
companies have disappeared, which was followed by and increase in unemployment.
price of oil, debt, the improvement in tax collection and the CD’s issued by
the Central Bank (by as much as US$ 5 billion) are insufficient to take care of
the expenditure race that Chavez is propelling. Despite the increase in income,
the fiscal deficit increases (US$ 9 billion)
The lack of administrative control and competence facilities corruption. A new
revolutionary elite has surged that moves from the poor barrio to live in the
mansions of exclusive areas. Despite the bad economic situation, there is a
waiting list in Venezuela
to buy high end cars, that only enriched Chavistas are ready to acquire.
Chaos in the financial
execution of public funds accentuated with the creation of a parallel financial
sector. Without much infrastructure and without experts who had his confidence,
Chavez created eight new banks-Bank of Women, Bank of the People, Bank of
Popular Housing, Bank of the Armed Forces etc.-which give out loans without
guarantees and without worrying about collecting. Delinquency in Venezuela
ranges between 8 and 10%, but that if these banks reaches 53%, despite their
recent creation, some have been refloated by the State up to four times.
Social programs under Chavez are
doubly costly, since they duplicate activities and function of already existing
institutions. In the poor barrios he created health clinics and centers with
Cuban doctors, but he is allowing the slow agony of the Social Security system
(Hospital and emergencies), cutting their budgets. All of it has a political
end. For Chavez, what was there before he got to power, does not work. The only
things that work are those he creates.One of the measures that increased the popularity of the
Venezuelan President the most before the recall referendum was a network of
popular supermarkets known as Mercal-that offer foodstuffs at subsidized
prices. In some products, Mercal supplies 40% of what Venezuelans eat. Sugar,
flour, rice, beans, milk, oil, canned goods, pasta and other products enjoy a
direct subsidy (the difference between the purchase and the sale price) and an
indirect one when the price is not affected by operating and administrative
costs. The program is beginning to come apart at the seams: an increasing number
of foodstuffs are detoured to parallel markets at free market prices. The same
beneficiaries stockpile them, and sell them. Mercal confronts increasing
difficulties due to its management, commercial and financial contradictions.
imposing a barter economy. He gives oil in exchange for political support or
diverse products. To Castro’s regime he facilitates under advantageous conditions
some 80,000 barrels of oil a day, that Havana
pays for by sending 16,000 doctors sports trainers m advisors and agents of all
kinds. Given the good friendship n that Chavez maintains with Kirchner, he will
buy 500 million dollars of Argentine debt and sends crude in exchange for pregnant
calves. He exchanges with China
fuel oil for bicycles and tractors.