Tuesday, August 14, 2007

The Venezuelan Economy

Taken from a discussion with a fan of Hugo 'dictator-in-motion' Chavez

(All are my words)

The Unemployment rate in Venezuela sits around 8.9% - which is not bad relatively speaking It is slightly better than Brazil and Argentina but not as good as Chile and Peru.However it has dropped considerably over the decade so far – although this seems to be a phenomena across most of South America – which makes me wonder if it may not be associated with the long term impact of fiscal conservatism that has become a mainstay of South American economic thinking since the hyperinflation years of the 80’s and 90’s.

Nevertheless I will give Chavez some credit for the lower rate. In late 2004 I visited Venezuela, a beautiful country, with a very warm and friendly populace (based of course on my limited experience there – no I didn’t stay in a resort for a full week if that’s what you are thinking – but actually toured the countryside), but I couldn’t help noticing how much job duplication there was. For example in Canadian restaurants we normally have one ‘busboy’ per table in most Venezuelan restaurants there were 2 or 3. It reminded me of my sister’s account of visiting Hungry in 1989 (in the dying days of the cold war) – she said that in many of the washrooms for example there were several individuals employed to dispense soap and hand out towels – not exactly efficient but I suppose from a human issue standpoint it does provide work and of course makes the unemployment numbers look good.

Inflation in Venezuela is a problem, It sits around 20%. This does represent a sharp decline from the 1996 era however the vast drop in inflation did not occur under Chavez’s watch but under the previous government as the graph shown on http://www.latin-focus.com/latinfocus/countries/venezuela/vencpi.htm indicates. In fact around June 2003 it skyrocketed again to 50%+ levels. The raise in oil prices may have played a large factor in this. You are correct, ** that there was a steady decline in the 2004-early 2007 period but as of June 2007 inflation appears to be on the increase (It could be related to expectations of handouts following foreign oil investment nationalizations that have become more apparent of late).

The problem with the Chavez plan is that it has a ‘candy-to-the-kid-element’. It looks good right away and is appealing to the populace but the long term implications of increased nationalization are usually disastrous (case in point most of Africa and many European countries in the 50’s and 60’s, not to mention the East Bloc Nations)– it decreases foreign investment and discourages a competitive market that ultimately would favour long term/sustainable growth and overall improvement in the standard of living.The economist five year forecast discusses this issue further.

http://www.economist.com/countries/Venezuela/profile.cfm?folder=Profile-Forecast


As for Crime rate – here are some articles worth looking into
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/09/AR2006050901803.html

http://www.nationmaster.com/graph/cri_mur_percap-crime-murders-per-capita

http://www.nytimes.com/2006/12/02/world/americas/02venezuela.html?ex=1322715600&en=3bd8d942014d5486&ei=5088&partner=rssnyt&emc=rss

Thanks

Gavin
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