Energy crisis paralyzes socialist Venezuela

Energy crisis paralyzes socialist Venezuela

Juan Forero
Washington Post
May 1, 2010

SAN CRISTOBAL, VENEZUELA - 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 Chavez, 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 Josi 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."

Chavez still hails what he calls his "21st-century socialism" as the answer to the American-style capitalism he calls an abject failure. But through his long tenure, the Venezuelan economy has expanded by an average of less than 3 percent a year, even as the price of oil hit a historic high of $150 a barrel in 2008.

Last year, the economy slid 3.3 percent. Some economists, including Guerra, predict a 5 percent contraction this year. The International Monetary Fund (IMF) 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. "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 Larrazabal, president of Coindustria, which represents manufacturing nationwide.

At Three M, a metal mechanics workshop in Caracas, manager Marta Medina has had to reduce her workforce from more than 50 employees a year ago to eight. She describes problems coming from every direction: blackouts that have burned out motors on huge machinery, a shortage of spare parts, falling orders.

"We have losses, we have uncertainty, we lose credibility as a company," Medina said.

Chavez's popularity has fallen below 50 percent, rare during his tenure and problematic for his followers as they gear up for parliamentary elections in September. Analysts say the opposition could carve out space for itself in a Congress once wholly controlled by the president's allies.

Chavez has publicly expressed no concern, though he acknowledged the economic downturn in a speech last week.

"Is that reason to worry?" he asked the party faithful. "Not at all."

The downturn has only been compounded by the inability of Venezuela's hydroelectric dams to generate enough power. The government blames a long drought. But energy experts say Venezuela failed to make billions of dollars in investments to upgrade hydroelectric dams and power-generating plants.

To save energy, the government has imposed rolling blackouts in major cities since Jan. 13. In some cities, the blackouts can last four hours or more a day.

"They failed to do everything," said Nelson Hernandez, a professor of energy policy at the Metropolitan University in Caracas. "If you do not develop your infrastructure -- your hydroelectric generation, your electrical generation -- you're going to have a collapse."

Apparently Chavez' experiment is not working. On the other hand, the capitalism they had before all this sh!t didn't work either, because the Venezuelans voted out capitalism that left the population impoverished and unemployed and went for this by a huge majority. You get what you vote for.

Chavez will blame this latest blunder on the US as well. On the bright side, I'm sure these blackouts are doing wonders for Venezuela's carbon footprint.

It won't be too much longer before things there get much much worse and then we'll start hearing about people disappearing "mysteriously" after being taken into custody by the gov't. This guy is a modern day Stalin. But Chavez has the big fat mouth to further exasperate the problems.

But guess what? Business is dying there and it was the tax on business along with oil that kept the payments coming. Then Chavez nationalized the oil companies (kicking Shell out). The article says production is down 20%. It's more like 40%. That country is set to implode within the next couple of years and it won't be pretty.