Economic Woes Threaten Chavez's Socialist Vision

Venezuelan President Hugo Chavez i i

Venezuelan President Hugo Chavez (shown here in October 2009) and his moves toward a socialist state are facing increasing challenges as the country struggles with an economic downturn and an unprecedented energy crisis. Juan Karita/AP hide caption

itoggle caption Juan Karita/AP
Venezuelan President Hugo Chavez

Venezuelan President Hugo Chavez (shown here in October 2009) and his moves toward a socialist state are facing increasing challenges as the country struggles with an economic downturn and an unprecedented energy crisis.

Juan Karita/AP

Venezuela's economy is in trouble despite the country's huge oil reserves. Blackouts plague major cities. Its inflation rate is among the world's highest. Private enterprise has been so hammered, the World Bank says, that Venezuela is forced to import almost everything it needs.

The situation is creating a serious challenge to President Hugo Chavez's efforts to transform his country into a socialist state.

Take, for instance, the Three M metal works, tucked into an industrial zone in San Cristobal, the capital of Tachira state in western Venezuela.

On a recent day, big machinery stamps out sheet metal. For a moment, things seem normal in the plant. But more often than not these days, the contraptions are dead quiet — shut down.

"Just like us, everyone is suffering," says manager Marta Medina. She reels off a list of problems the company faces: lack of spare parts, power shortages and falling orders.

The workforce is down to just eight, from more than 50 people employed a year ago.

It's a common experience in Venezuela, where the economy contracted 3.3 percent in 2009 and is expected to shrink further this year. Few business owners see a rosy future, at least in the short term.

Jose Guerra, a former Central Bank economist, says state intervention in private businesses is hitting the economy hard.

"The government is nationalizing, expropriating, or confiscating," he says. "They are not creating new wealth; this is wealth that was already created."

If that weren't bad enough, another factor is hobbling the economy — an unprecedented energy crisis.

Critics say a lack of investment, coupled with government ineptitude, left Venezuela without the electrical generation capacity it needs. The government blames a brutal drought.

Whatever the reason, cities such as San Cristobal go dark every day — sometimes for four hours or more, as the government uses rolling blackouts to save energy.

On a recent morning at Zambrano auto works, the compressors and power painters come on after a blackout. Workers have been at a standstill for an hour, says Jesus Yanis, who paints cars. He adds that he expects the power to go out again later in the day, for another two hours.

The blackouts have hurt business, Yanis says.

This is not the way it was supposed to be. Venezuela is one of the world's great energy powers. Its oil reserves are among the world's largest and its hydroelectric plants are among the most potent.

But these days, Venezuela is being left behind: The rest of Latin America is expected to grow at a healthy rate this year, according to the World Bank.

Guerra, the former Central Bank economist, says the government must reconsider its policies — and drop the statist socialist model that Chavez adopted.

"The government has to consider that the socialist point of view is not so good for the economy," Guerra says. "Chavez believes in the old-fashioned socialism. This kind of socialism is dead, definitely dead, it doesn't apply to any country in the world."

In a recent speech, Chavez acknowledged the economic troubles, but he said he wasn't worried.

Instead, he spoke of a worldwide capitalist crisis, which he said provided a marvelous opportunity for Venezuela to push a new model.

Many Venezuelans are simply adapting.

The grill at Landi Nieto's burger joint still works: It runs on gas. But customers eat in the dark, Nieto says, if they venture out at all in the first place.

He says you just get used to it and you accept it. But he hopes the government resolves the problem, some day.

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