Chavez command economy revolting

WSJ:

Venezuela's economy is suffering a deepening recession at a time when the rest of the world's economies are picking up steam, according to data released Tuesday by the country's central bank. That is bad news for the country's populist leader Hugo Chávez.

In the third quarter, economic output fell 4.5% compared with the year-earlier period. The decline follows a second-quarter drop of 2.4% -- the second consecutive quarter of economic decline -- officially putting Venezuela into recession.

The Venezuelan government doesn't provide data to compare economic activity from one quarter to the next.

The drop, worse than expected, poses a major challenge for Mr. Chávez, who has been in power for a decade and has moved Venezuela sharply to the left, nationalizing industries and using the country's oil money to boost government spending and build popularity.

"This is much worse than expected and will send the government into panic mode," said Boris Segura, senior economist for Latin America at Royal Bank of Scotland.

A decline in oil prices from their record levels in July 2008 has forced Mr. Chávez to rein in public spending this year. Consumers also have tightened their belts, with imports falling 29% in the third quarter compared with the year-earlier period. Retail sales slipped 11.5%.

Businesses, under siege from the government's drive to socialism, appear in no mood to pick up the slack. Private-sector economic activity dropped 5.8% in the third quarter, the central bank reported, while manufacturing activity slid 9.2% from the year-earlier period.

Complicating matters for the government, inflation remains stubbornly high, at nearly 30% for the past 12 months. Higher prices are expected to erode the purchasing power of ordinary Venezuelans by about 6% this year, according to Caracas-based research firm Ecoanalitica. The firm said the recession also means that companies are likely to freeze salaries next year, and that real incomes could fall as much as 10% in 2010.

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"Government spending has become highly ineffective in generating economic growth. The years of the economic booms financed by oil are over," said Asdrubal Oliveros, a director at Ecoanalitica.

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That is a lesson Obama is also learning. In a few more years Chavez could be competing with Cuba and Zimbabwe for economic incompetence.