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LYNN NEARY, host:

Venezuela has huge oil reserves, but the economy is in trouble. Blackouts plague major cities. The inflation rate is among the world's highest. Private enterprise has been so hammered, the World Bank says, that Venezuela is forced to import most everything it needs. That's creating a serious challenge to President Hugo Chavez's efforts to transform his country into a socialist state. NPR's Juan Forero reports from San Cristobal, Venezuela.

(Soundbite of factory machinery)

JUAN FORERO: At Three M metal works, the big machines stamp out sheet metal. And for a moment, things seem normal in this plant, tucked into an industrial zone in western Venezuela. But more often than not these days, the contraptions are dead quiet, completely shut down.

Ms. MARTA MEDINA (Manager, Sheet Metal Plant): (Spanish spoken)

FORERO: Just like us, everyone is suffering, says manager Marta Medina. She then reels off problems the company faces: lack of spare parts, power shortages, falling orders. The workforce is down to just eight, from more than 50 a year ago.

It's a common refrain here. The economy contracted 3.3 percent last year, and is expected to slide some more this year. Jose Guerra is a former Central Bank economist. He says the government takeovers of private business are hitting the economy hard.

Mr. JOSE GUERRA (Economist): They are not creating new wealth. This is the wealth that was already created.

FORERO: If that weren't bad enough, there's another factor hobbling the economy: an energy crisis like no other. Critics say a lack of investment, coupled with government ineptitude, left Venezuela without the electrical generation it needs. The government blames a brutal drought.

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

(Soundbite of factory machinery)

FORERO: That's the sounds of compressors and power painters coming back on in Zambrano Auto Works on a recent morning. Workers had been at a standstill for an hour, said Jesus Yanis, who paints cars.

Mr. JESUS YANIS (Zambrano Auto Works): (Spanish spoken)

FORERO: He said the blackouts have hurt business. But no matter. He expected the power to go out again later in the day.

This is not the way it was supposed to be. Venezuela is one of the world's great energy powers. But these days, Venezuela is being left behind: The rest of Latin America is expected to grow at a healthy rate this year, the World Bank says.

Guerra, the former Central Bank economist, says the government must reconsider its policies. He says Chavez believes in old-fashioned socialism, and Guerra says it's a failure.

Mr. GUERRA: This kind of socialism is dead, definitely dead. It doesn't apply to any country in the world.

FORERO: In a recent speech, Chavez acknowledged the economic troubles, but he said he wasn't worried. Instead, he spoke of a worldwide capitalist crisis, and that it 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.

Mr. LANDI NIETO (Restaurateur): (Spanish spoken)

FORERO: He says Venezuelans are getting used to it. But he hopes the government resolves the problem some day.

Juan Forero, NPR News, San Cristobal, Venezuela.

(Soundbite of music)

NEARY: This is NPR News.

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