Hugo Chavez: Circling the Drain?
Announcement of the devaluation did have one immediate stimulating effect. Stores selling electronic and other imported goods were jammed with customers seeking to buy them before the prices doubled. El Presidente promptly called upon the National Guard to deal with shopkeepers engaged in "speculation" by raising prices, and announced that he would nationalize businesses which do such things. He said that he "will take over shops and give them to workers if price rises are uncovered." The National Guard obeyed, and as of January 17 more than a thousand shops had been closed at least briefly.
On January 17:
President Hugo Chávez ... ordered the expropriation of a French-owned hypermarket chain that operates close to a dozen stores in Venezuela, accusing it of price speculation following the country's currency devaluation.
Chávez said his government would seize control ... after lawmakers approve legislation allowing the expropriation of businesses that have raised prices inordinately.
María León (minister for women and gender equality) announced that an "army" of 200,000 men and women were to be "mobilized" in "brigades" to back up the government's crackdown on errant shopkeepers. "We can't accept speculation any more," she declared.
Of course, some "good" things may well come from the devaluation:
The deficit will equal 3.2 percent of gross domestic product this year, rather than the 7.4 percent of GDP it would have equaled without a devaluation, according to RBS forecasts. The revenue windfall will help Chávez boost spending 30 percent ahead of congressional elections in September.
That assumes, of course, that the inflation monster will not roar too loudly. Nevertheless, accounting magic is wonderful to behold; votes are precious and should not be bought and sold cheaply.
Not strangely, Chávez's view of the future seems less rosy than at any time in the past, in part due to the financial difficulties but also due to problems with the generation and distribution of electricity. The failure on January 15 of anyone to show interest in development of Venezuela's substantial natural gas reserves probably did not brighten his mood.
In response to severe water and power shortages, business, industry, and even government offices have been required to curtail their activities. Rolling power blackouts were instituted on January 8 but were lifted just twenty-four hours later in Caracas only; it has been suggested that folks in the provinces, where the blackouts continue, may not be happy with that. In any event, a "better" plan is in the works and the electricity minister has been fired since it was all his fault.
These problems are almost certain to damage the Venezuelan economy even more:
Economists fear that the rationing will plunge Venezuela still further into recession, after posting its third consecutive quarter of negative growth last month. The economy contracted 2.9 per cent in 2009 even as most other countries in the region began to recover from the global downturn. ...
Energy experts reject President Hugo Chávez’s claims that ... El Niño is to blame for the mounting electricity crisis. They accuse the government of mismanaging the sector, arguing that more than a decade of underinvestment and a failure to maintain existing infrastructure are at the root of the problem.
Victor Poleo, a former vice-minister for electricity under Mr. Chávez, believes corruption is the reason for less than a third of the funds assigned to electricity projects reaching their intended destination. The wastefulness of consumers and high economic growth in recent years have exacerbated the problem. (emphasis added)
"High economic growth?" Not in Venezuela.