Oil Wars

Economic Growth is a Home Run in Venezuela

By: Mark Weisbrot - Knight-Ridder News Service

CARACAS - "Viva Chavez," shouted Chicago White Sox manager Ozzie Guillen, as the team celebrated its World Series sweep last week. Guillen is Venezuelan, and a national hero in this country of 25 million people who seem to believe that they too, along with Chicagoans, have won the World Series.

His cheer for the country's leftist President Hugo Chavez might have caused some reaction just a year or two ago. But these days it went largely unnoticed, despite the continuing hostility between the Chavez government and the Bush administration. Relations between the two governments have been sour since the Bush administration supported a military coup against Chavez in April 2002, as well as a failed attempt to recall him last year.

But Chavez' popularity is now among the highest of any president in Latin America, with a 77 percent approval rating, according to the latest polling.

A few economic statistics go a long way in explaining why the Venezuelan government is doing so well and the opposition, which still controls most of the media and has most of the country's income, is flagging.

After growing nearly 18 percent last year, the Venezuelan economy has expanded 9.3 percent for the first half of this year - the fastest economic growth in the hemisphere. Although the government's detractors like to say this is just a result of high oil prices, it is not so simple.

Oil prices were even higher and rose much faster in the 1970s. But Venezuela's income per person actually fell during the 1970s. In fact, for the 28 years that preceded the current government (1970-1998), Venezuela suffered one of the worst economic declines in Latin America and the world: per capita income fell by 35 percent. This is a worse decline than even sub-Saharan Africa suffered during this period, and shows how completely dysfunctional the economic policies of the old system had become.

Although Chavez talks about building "21st century socialism," the Venezuelan government's economic policies are gradualist reform, more akin to a European-style social democracy. The private sector is actually a larger share of the Venezuelan economy today than it was before Chavez took office.

One important reform, long advocated by the International Monetary Fund, has been the improvement of tax collection. By requiring both foreign and domestically-owned companies to pay the taxes they owe, the government actually increased tax collection even during the deep recession of 2003 -- a rare economic feat.

As a result, the government is currently running a budget surplus, despite billions of dollars of increased social spending that now provides subsidized food to 40 percent of the population, health care for millions of poor people, and greatly increased education spending. The official poverty rate has fallen to 38.5 percent from its most recent peak of 54 percent after the opposition oil strike. But this measures only cash income; if the food subsidies and health care were taken into account, it would be well under 30 percent.

The government's currency controls have also helped to stem the capital flight that had hurt the economy prior to 2003. The country's public debt and foreign debt are at moderate levels. With an accumulated $30 billion of reserves - perhaps twice what the country needs -- Venezuela is well-poised to maintain growth even if oil prices drop unexpectedly.

Of courses Venezuela still faces many of the challenges common to the region: the judicial system is weak, crime rates are high, and the rule of law is not well established. But the present government, which has had less than three years of political stability - attempts to overthrow the government through violence and large-scale economic sabotage did not cease until the oil strike collapsed in February 2003 -- has set the economy on a solid growth path. And it has kept its promise to share the nation's oil wealth with the poor.

In short, the vast majority of Venezuelans got what they voted for, and even some who voted against the government now seem to be satisfied with the result. It's a pretty good start, and whatever the Bush administration thinks of Chavez - who calls President Bush "Mr. Danger" - it's the way democracy is supposed to work