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Jun 18th 2009 * CARACAS
From The Economist print edition
Hard times on the streets of Caracas
Panos
Grab the chicken while stocks lastGLOBAL capitalism may be in crisis, but thanks to “21st-century socialism” Venezuela’s economy is “armour-plated” and the country’s poor have nothing to fear. That has been the message from Hugo Chávez, Venezuela’s president, and his ministers in recent months. If anyone is to suffer from the lower price of oil, the country’s mainstay, they insist it will be only “the oligarchy”. And serve them right: according to Mr Chávez, the rich are merely “animals in human form”.
The oil price has doubled from its December trough (although it is still only half its peak of a year ago), so one might expect Mr Chávez’s fighting talk to be reflected in resilient living standards. But inflation is close to 30%, real wages are falling and welfare schemes have suffered big cuts in their budget. The mood on the streets of poorer suburbs of Caracas, the capital, is glum.
“I go shopping whenever I can scrape together enough money,” says Pedro López, a bricklayer who has been out of work for the past three months. Officially, unemployment is stable at around 7%. But Mr López says: “It’s not just me. Lots of my workmates have been laid off too.” According to the Central Bank, the economy grew by 0.3% in the first quarter compared with the same months of 2008. Construction is supposed to have expanded by 3.6%. But some economists doubt the figures.
Public investment is under strain. This month, for example, the boss of Caracas’s metro system announced a review of a new line already under construction, with the probable scrapping of two stations. He argued that since these were in middle-class areas they would “benefit the oligarchy” who all have cars anyway. Other public-sector projects have slowed or stalled, seemingly for lack of funds.
Consumer confidence fell by 17% between December and May, according to Datanálisis, a market-research company. Food consumption among poorer Venezuelans may be declining, says Pavel Gómez, an economist at IESA, a Caracas business school. Opinion polls reveal a sharp rise in worries over the cost of living. The government’s answer to years of persistent inflation has been price controls and Mercal, a state-owned and subsidised grocery chain that offers a limited selection of staples at discounts of up to 40%. But Mercal’s sales fell by more than 11% in the first five months of this year, partly because of store closures and distribution problems.
“Every day, things get a little tighter,” said Migdalia Pérez, a community activist in Catia, a working-class district of 500,000 people in western Caracas. “And it’s been a while since we’ve had a Mercal around here.” Near Propatria metro station, a dozen Mercal employees sit idle by the door of the local branch. They insist it is being “refurbished”. Locals say it opens only when an occasional shipment of imported chicken arrives. Smaller corner shops known as Mercalitos which devote some shelf-space to subsidised goods are also closing down. “It’s not profitable,” says José Cabrita, who owned one. “They don’t allow you any margin.” He adds that supplies were erratic.
The most popular of Mr Chávez’s social misiones is Barrio Adentro, which includes a network of primary-health centres initially staffed by thousands of Cuban doctors. But many of these have also closed. Poorer Venezuelans must rely on rundown public hospitals, which have been starved of funds under Mr Chávez. Mr López, the bricklayer, says that when he broke his wrist in an industrial accident, “it took three months to fix it, and I had to buy the metal pins myself.”
Much of the money for the dozens of social misiones which Mr Chávez set up as a parallel welfare state came direct from PDVSA, the state oil company. But its oil output has been falling. When the oil price plunged last year, its direct transfers to welfare programmes fell to $2.7 billion, from $7.1 billion in 2007. That is because responsibility for the misiones has been handed over to the relevant ministries, according to Rafael Ramírez, PDVSA’s chairman. But since oil revenues pay for around half of the government’s budget, this has not prevented cuts in welfare spending.
On the face of things, the recent recovery in the price of oil to around $70 a barrel should enable Mr Chávez to muddle through without radical shifts in policy. But Venezuela’s generally heavy and sulphurous oil sells at a discount of around $10 a barrel. To sustain public spending at its peak level without deficits would have required Venezuelan oil to sell at an average of $90 a barrel last year, according to a calculation by Domingo Maza Zavala, a former governor of the Central Bank. The magic price would be higher still today, given inflation (the official exchange rate is pegged to the dollar) and the further expansion of the state through the nationalisation of private businesses.
So that points to a mixture of cuts and borrowing. Since public debt was low, at 20% of GDP last year, and Venezuelan banks have ever-fewer private clients, there is some room for further loans. The National Assembly
Jun 18th 2009 * CARACAS
From The Economist print edition
Hard times on the streets of Caracas
Panos
Grab the chicken while stocks lastGLOBAL capitalism may be in crisis, but thanks to “21st-century socialism” Venezuela’s economy is “armour-plated” and the country’s poor have nothing to fear. That has been the message from Hugo Chávez, Venezuela’s president, and his ministers in recent months. If anyone is to suffer from the lower price of oil, the country’s mainstay, they insist it will be only “the oligarchy”. And serve them right: according to Mr Chávez, the rich are merely “animals in human form”.
The oil price has doubled from its December trough (although it is still only half its peak of a year ago), so one might expect Mr Chávez’s fighting talk to be reflected in resilient living standards. But inflation is close to 30%, real wages are falling and welfare schemes have suffered big cuts in their budget. The mood on the streets of poorer suburbs of Caracas, the capital, is glum.
“I go shopping whenever I can scrape together enough money,” says Pedro López, a bricklayer who has been out of work for the past three months. Officially, unemployment is stable at around 7%. But Mr López says: “It’s not just me. Lots of my workmates have been laid off too.” According to the Central Bank, the economy grew by 0.3% in the first quarter compared with the same months of 2008. Construction is supposed to have expanded by 3.6%. But some economists doubt the figures.
Public investment is under strain. This month, for example, the boss of Caracas’s metro system announced a review of a new line already under construction, with the probable scrapping of two stations. He argued that since these were in middle-class areas they would “benefit the oligarchy” who all have cars anyway. Other public-sector projects have slowed or stalled, seemingly for lack of funds.
Consumer confidence fell by 17% between December and May, according to Datanálisis, a market-research company. Food consumption among poorer Venezuelans may be declining, says Pavel Gómez, an economist at IESA, a Caracas business school. Opinion polls reveal a sharp rise in worries over the cost of living. The government’s answer to years of persistent inflation has been price controls and Mercal, a state-owned and subsidised grocery chain that offers a limited selection of staples at discounts of up to 40%. But Mercal’s sales fell by more than 11% in the first five months of this year, partly because of store closures and distribution problems.
“Every day, things get a little tighter,” said Migdalia Pérez, a community activist in Catia, a working-class district of 500,000 people in western Caracas. “And it’s been a while since we’ve had a Mercal around here.” Near Propatria metro station, a dozen Mercal employees sit idle by the door of the local branch. They insist it is being “refurbished”. Locals say it opens only when an occasional shipment of imported chicken arrives. Smaller corner shops known as Mercalitos which devote some shelf-space to subsidised goods are also closing down. “It’s not profitable,” says José Cabrita, who owned one. “They don’t allow you any margin.” He adds that supplies were erratic.
The most popular of Mr Chávez’s social misiones is Barrio Adentro, which includes a network of primary-health centres initially staffed by thousands of Cuban doctors. But many of these have also closed. Poorer Venezuelans must rely on rundown public hospitals, which have been starved of funds under Mr Chávez. Mr López, the bricklayer, says that when he broke his wrist in an industrial accident, “it took three months to fix it, and I had to buy the metal pins myself.”
Much of the money for the dozens of social misiones which Mr Chávez set up as a parallel welfare state came direct from PDVSA, the state oil company. But its oil output has been falling. When the oil price plunged last year, its direct transfers to welfare programmes fell to $2.7 billion, from $7.1 billion in 2007. That is because responsibility for the misiones has been handed over to the relevant ministries, according to Rafael Ramírez, PDVSA’s chairman. But since oil revenues pay for around half of the government’s budget, this has not prevented cuts in welfare spending.
On the face of things, the recent recovery in the price of oil to around $70 a barrel should enable Mr Chávez to muddle through without radical shifts in policy. But Venezuela’s generally heavy and sulphurous oil sells at a discount of around $10 a barrel. To sustain public spending at its peak level without deficits would have required Venezuelan oil to sell at an average of $90 a barrel last year, according to a calculation by Domingo Maza Zavala, a former governor of the Central Bank. The magic price would be higher still today, given inflation (the official exchange rate is pegged to the dollar) and the further expansion of the state through the nationalisation of private businesses.
So that points to a mixture of cuts and borrowing. Since public debt was low, at 20% of GDP last year, and Venezuelan banks have ever-fewer private clients, there is some room for further loans. The National Assembly
