Venezuela grinding to a halt under socialism

Washington Post:

Every day for the past three months, government-programmed blackouts have meant the lights flicker and go dark in a city that once bustled with commerce. And Fifth Street, with its auto parts stores and car repair shops, has ground to a halt.

"We just stop," said Jesus Yanis, who paints cars. "We don't work."

Neither does the rest of Venezuela, where a punishing, months-old energy crisis and years of state interventions in the economy are taking a brutal toll on private business. The result is that the economy is flickering and going dark, too, challenging Venezuela's mercurial leader, Hugo Chávez, and his socialist experiment like never before.

No matter that Venezuela is one of the world's great oil powers -- among the top five providers of crude to the United States. Economists say Venezuela is gripped by an economic crisis that has no easy or fast solution, even if sluggish oil production were ramped up and profligate state spending were cut.

"The government is paralyzed, unable to handle the situation -- and there are no fiscal plans to deal with the crisis," said José Guerra, a former Central Bank economist who directs the economics department at Central University in Caracas, the capital. "Our situation is unbelievable, because we have one of the biggest reserves of oil in the world, thermal-electrical and hydroelectric sources."

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Last year, the economy slid 3.3 percent. Some economists, including Guerra, predict a 5 percent contraction this year. The International Monetary Fund says the economy will probably shrink 2 percent.

Venezuela's performance stands in stark contrast to the rest of Latin America, where some central banks worry about overheating economies in 2010. In Peru, Chile and Brazil, all of which embrace globalization, growth could indeed go well beyond 4 percent, the IMF says. Venezuela, economists say, stands out -- its economic policies marked by the nationalization of industries and stringent currency controls.

"The reason Venezuela is contracting is because private activity is contracting," Augusto de la Torre, the World Bank's chief economist for Latin America, said in Washington last week. "What we're seeing in Venezuela is a phenomenon where productivity, private activity and private business is falling."

The oil industry is pumping 20 percent less crude than in the 1990s and is saddled with debt. The country's inflation rate could hit 35 percent this year, economists say. Thousands of factories, paralyzed by a failure to access money or spare parts, have closed since 1999, said Carlos Larrazábal, president of Coindustria, which represents manufacturing nationwide.

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We are getting a rerun on why socialism does not work. As Venezuela's economy spirals downward Chavez is calling on the hemisphere's biggest failure, Cuba for advice. It has been a bright shining example of the failure of socialism for decades.

The country will have to get rid of Chavez before it can recover economically. Then the question will be whether investors will be willing to take another chance on Venezuela, after they have been screwed by Chavez's policies.