Chavez: A Decade of Disaster

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Ten years of Hugo Chavez have significantly weakened the non-oil economy as well as state oil giant PDVSA.

Hugo Chavez has now been in power in Venezuela for a full decade. And what a disaster he has been. Sure, the economy has been growing strongly in recent years thanks to high oil prices. That growth in turn benefitted sectors ranging from technology to finance, as we have chronicled amply in Latin Business Chronicle.

However, Chavez blew it. Instead of using the oil bonanza to invest in the state oil company PDVSA (Latin America's second-largest company) and prepare for the day when oil prices would inevitably fall, he spent the oil wealth as if there was no tomorrow. He converted PDVSA from one of the most efficient state oil companies in the world to a monster that now deals with everything from food distribution in Venezuela to buying media outlets in foreign countries like Bolivia.

A jury in Miami also found that PDVSA executives and Venezuelan businessmen close to Chavez were involved in a scheme to provide $5 million in cash to Cristina Fernandez, the president of Argentina before the October 2007 elections. They could only reach this conclusion because Argentine customs had confiscated $800,000 during a routine inspection of a PDVSA plane that landed in Buenos Aires in August 2007. We can only presume that this incident is the top of the iceberg and that Chavez has sent millions of dollars more of PDVSA money around Latin America to further his anti-Capitalist and anti-American agenda.

Meanwhile, basic investments in PDVSA on maintenance have floundered, resulting in inactive oil rigs and production falling.

As long as oil prices were high such callous policies may have appeared to work. However, with oil prices falling dramatically, the whole stack of cards is now crumbling. As we recently reported, thanks to the combination of falling oil prices, declining production and growing costs, PDVSA may have to cut staff, reduce investments and even consider asset sales, according to a report from UK-based risk analysis consultancy Exclusive Analysis. Royal Bank of Scotland recently denied the company short-term credit, it said.

By its own admission, PDVSA is behind on nearly $8 billion in payments, resulting in companies like Helmerich & Payne and Ensco International suspending their oil drilling operations in Venezuela, AP reported Friday. In Zulia state alone, PDVSA is behind on paying $465 million to 230 service providers, an official the Fedecamaras business chamber told the news agency.

This is the company that has taken over management of EDC, the electricity company Chavez nationalized in 2007. At the time it was one of Venezuela’s largest private companies, along with telecom company CANTV, which was also nationalized.

For all practical purposes, PDVSA now dominates Venezuela’s economy. At the same time, Chavez’ economic policies have dramatically weakened the non-oil sector of the country. With oil prices at their current low levels, the result spells economic crisis and disaster.

Meanwhile, Chavez has also managed to significantly increase corruption, while crime has reached record levels. CANTV customers are now increasingly complaining of having to pay bribes just to get basic jobs done, as our Caracas correspondent John Sweeney reported recently. And police, after years of politicizing and growing corruption, appear to be unprepared -- or unwilling -- to stem the rising wave of kidnappings and violent crime that are hitting cities across Venezuela. Even more worrisome are the growing restrictions on political rights and civil liberties, as amply denounced by Human Rights Foundation.

That’s the legacy of Hugo Chavez after ten years in power. Not much to brag about as he seeks to win a referendum next week on whether he can run for re-election indefinitely. Fortunately, polls show that he will lose that referendum. Hopefully that will also mean the beginning of the end of Chavez’ misrule of Venezuela.