Tuesday, November 6, 2007

Hugo Chavez in action: The disfunctional nature of Venezuela's national oil company

The New York Times Magazine has a well-balanced read on the plight of Venezuela's national oil company. Chavez has funneled oil profits away from reinvestment, like maintenance and new exploration, into social programs for the poor (and a slush fund that is used to buy weapons). Unfortunately, the law of unintended consequences rears its head:

Whatever success the missions have at helping the poor may be dwarfed by the grotesque distortions in the economy as a whole. Inflation is officially at 16 percent but is most likely higher, according to Orlando Ochoa, the economist, who is usually critical of Chávez. He says that in the basket of goods and services used to measure inflation, just under half the items are sold at government-controlled prices. Many goods simply can’t be bought at those prices, and consumers must pay double the price in a street market. Or the goods can’t be found at all, their producers forced out of business by price controls. Beans and sugar were hard to find cheaply when I visited Caracas in September; fresh milk and eggs hard to find at all. Recently, people had to line up for five hours to get a liter of milk. One proposal in Chávez’s constitutional referendum could increase inflation much further by abolishing the autonomy of the Central Bank and giving the president power over Venezuela’s international reserves. The proposal would also essentially allow Chávez to print money.

No comments: