Recent weeks have brought more depressing economic news from Venezuela, where populist leader Hugo Ch谩vez seems intent on destroying not only democracy but also the last remaining vestiges of private enterprise.
On April 21, the Latin Business Chronicle predicted that Venezuela would post the world聮s highest inflation rate in 2010, ahead of even the war-torn Democratic Republic of Congo.
On May 5, the United Nations Economic Commission for Latin America and the Caribbean reported that foreign direct investment (FDI) in Venezuela dropped from $349 million in 2008 to negative $3.1 billion last year, 聯mainly as a result of nationalizations.聰 In other words, the Bolivarian Republic experienced a net FDI outflow of $3.1 billion in 2009.
On May 7, the Venezuelan central bank released data showing that consumer prices rose by 5.2 percent from March to April. As Bloomberg News noted, this represented the largest monthly increase since 2003. Meanwhile, the annual inflation rate hit nearly 32 percent.
On May 11, the Ch谩vez-controlled National Assembly introduced legislation designed to clamp down on currency trading and strengthen the 产辞濒铆惫补谤, Venezuela聮s national monetary unit. 聯This is a very negative measure for the Venezuelan economy,聰 Barclay's Capital economist Alejandro Grisanti told Dow Jones. 聯It will increase the pressure on prices and will deepen the contraction of the economy.聰 In January, Ch谩vez devalued the 产辞濒铆惫补谤 in order to facilitate greater social spending. Since then, the currency has plummeted, making Venezuela聮s already dire inflation problem even worse.
The Bolivarian Republic is gradually crumbling, and Ch谩vez seems intent on speeding up the process. According to International Monetary Fund projections, Venezuela is the only major Latin American country that will experience an economic contraction in 2010. Inflation has reached staggering levels: As Bancaribe economist Adrian Aguirre told Bloomberg News after Venezuela聮s central bank unveiled the April price data, 聯The fact that food prices rose by more than 11 percent is something we聮ve never seen in the last decade.聰 Venezuelan importers are also grumbling about the new two-tiered exchange-rate regime, which was implemented as part of the devaluation back in January. The higher rate (4.3 产辞濒铆惫补谤es per dollar) applies to 聯non-essential聰 imported goods. But the Associated Press reports that 聯the government has not distributed enough dollars at the official rate to satisfy demand, forcing close to half of Venezuela聮s importers to buy much more expensive greenbacks on the black market.聰
Venezuela聮s economic misery has inflamed anti-Ch谩vez sentiment and fueled large-scale protests. Ordinary Venezuelans are mad about food and water shortages, power outages, and surging crime rates. There are national legislative elections scheduled for September; unfortunately, many Venezuelans fear those elections will never take place. It聮s possible that Ch谩vez will manufacture a phony 聯security crisis聰 and suspend the voting indefinitely. It聮s also possible that he will permit the elections to go forward but disqualify certain candidates from running or preemptively arrest them on trumped-up charges.
If the elections are canceled, the last remnants of Venezuelan democracy will collapse. Opponents of Ch谩vez may eventually decide they have no peaceful choice. I sincerely hope this scenario does not come to pass. It is still possible that Ch谩vez can be defeated at the ballot box聴but only if he allows the elections to proceed. The Venezuelan strongman has been organizing regime-backed militias to subjugate the democratic opposition and protect his socialist revolution. In essence, he is creating his own version of Iran聮s Revolutionary Guards (who are committed to defending the theocratic dictatorship in Tehran).
Ch谩vez聮's paramilitary supporters effectively serve as a private government security force. They seek to intimidate the likes of former Venezuelan defense minister Ra煤l Baduel, who was recently sentenced to nearly eight years in prison. Baduel has been sitting in jail since 2009 as punishment for turning against the regime. Earlier this year, he published a letter with several other former Ch谩vez loyalists calling on the Venezuelan president to resign. The letter condemned Ch谩vez as 聯totalitarian聰 and argued that he 聯has neither moral nor material authority to rule the country, since he can not meet people聮s demands satisfactorily.聰
With inflation and crime spiraling out of control, more and more Venezuelans are coming to that conclusion. Rather than address their concerns, Ch谩vez is building an enormous militia movement to squash the unrest. As the September election date draws closer, the paramilitaries will seek to terrorize opposition candidates and discourage them from campaigning. There is a very real threat of bloody street violence. Is the international community paying attention?