Although slanted against Chavez, it deserves to be read seriously.
SR
CPM's hero in deep trouble
Hugo Chavez gifts oil-rich Venezuela 30 per cent inflation, writes Rachel Jones
Mirina Kakalanos has been forced to double prices at her family's shoe store in the last year. Customers turn away after browsing the pumps and sandals, but Kakalanos says she has no choice.
"There is less money coming in, and more costs to cover," said the 40-year-old mother of three, whose Greek immigrant father opened the shop after moving to Venezuela in search of a better life. Now she barely makes enough to get by.
Boom times are waning in oil-rich Venezuela, even as world crude prices soar. Inflation is nearing 30 percent, the highest in Latin America and annual economic growth slowed to 4.8 per cent in the first quarter, a four-year low.
Analysts say President Hugo Chavez's economic policies are hindering private investment and growth just as he hopes to boost support ahead of November's regional elections. Many point to the economy as his Achilles' heel.
Already complaining of inflation and food shortages, voters last December rejected constitutional changes that would have allowed Mr Chavez to run for re-election indefinitely -- his first blow at the ballot box, where he had enjoyed four straight electoral and referendum wins.
Inflation has been a familiar problem, but a newly slowing growth rate is making it a more urgent concern.
Mr Chavez plans to announce a package of economic measures to boost growth in coming days -- and to name a new Finance Minister to lead the strategy, Information Minister Andres Izarra said.
Venezuela, the world's 10th-largest producer of crude, has seen its annual budget triple to $ 63.9 billion since 2004 as oil prices soared. State oil monopoly Petroleos de Venezuela SA provides about half of the Government's income.
Mr Chavez pumped huge amounts of that revenue into social programmes for the poor, flooding the economy with cash and fuelling a consumer spending boom while banks increased lending.
Stanford University political scientist Terry Karl says oil booms always send growth soaring -- until an economy reaches what she calls an "absorption crunch".
"You just can't absorb that huge influx of money properly," Karl said. "You get problems with your prices, you get problems of supply. All those bottlenecks slow down growth and eventually create inflation."
Like many oil-producing nations, Venezuela has a history of inflation, which reached 103 per cent in 1996, two years before Chavez was first elected.
As prices now climb again, Mr Chavez's Government has tried to tame the trend -- issuing $ 4 billion in bonds in April to absorb excess cash, enforcing price controls on basic foods and holding the currency to a fixed exchange rate. It introduced a new monetary unit in January to boost confidence in its sagging "bolivar", and changed the way inflation is measured, incorporating data from smaller cities with less cash on hand.
The Central Bank embraced a more traditional anti-inflationary measure in March, raising interest rates on credit cards to 32 per cent and on savings deposits to 10 per cent to slow consumer spending.
But inflation is galloping, with rates of roughly 30 per cent after running at nearly 20 per cent a year earlier. And some of Mr Chavez's tactics have backfired.
Price caps have caused sporadic shortages, as some food producers sought other, more profitable work. And foreign exchange controls make it harder for businesses to get dollars to buy imports, driving them to buy the US currency on the black market, where it has sold at times for twice the official rate -- further inflating prices.
Investors complain that these restrictions -- not to mention the fear that their lands or companies could be taken over by the Government -- are making it harder to do business in Venezuela.
Mr Antonio Borguno has run a successful paint solvent plant in northern Carabobo State for 30 years. But when it came time to expand last year, he decided to build the $ 4 million plant in Panama. "The economy is safer" there, he said.
Foreign direct investment fell to $ 646 million in Venezuela last year, about half its average for the previous four years, according to the UN Economic Commission for Latin America and the Caribbean.
Analysts warn that slowing flow of capital is a drag on the country's annual growth rate, which slowed to 4.8 per cent at the end of the first quarter from 8.8 per cent last year.
Mr Chavez notes that Venezuela's growth handily beats the 0.9 per cent annual gain seen in the US in the first quarter. But developing economies typically grow faster: Latin America as a whole expanded by 5.6 per cent last year, according to the IMF. He urged businesses to invest in joint projects with his socialist Government. "We want private capital to invest in Venezuela," he insisted, calling for an "alliance between the state and the private sector".
But more often, state investment has replaced private capital. Since 2007, Venezuela has nationalised its largest telephone, electricity, steel and cement companies and assumed majority control over four major oil projects. And political allies, including China and Iran, have pledged billions of dollars for joint investments. That leaves some economists disputing the notion that Venezuela's economy is in trouble.
-- AP
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