http://www.miamiher
VENEZUELA
Chávez cools off Venezuelan economy
President Hugo Chávez
has followed orthodox economic policies in 2008 by reducing
government spending and raising the cost of borrowing money.
Posted
on Wed, May. 21, 2008
By TYLER BRIDGES tbridges@miamiheral
Venezuelan President Hugo
Chavez has followed orthodox economic policies to help slow the
economy, relieve food shortages and tamp down inflation.
MIRAFLORES
PRESS OFFICE Venezuelan President Hugo Chavez has followed orthodox
economic policies to help slow the economy, relieve food shortages
and tamp down inflation.
CARACAS -- President Hugo Chávez, disciple of free-market economist
Milton Friedman?
Hardly.
But Chávez, the proud originator of ''21st century socialism,'' has
followed orthodox economic policies during 2008 by reducing
government spending and raising the cost of borrowing money. The
goal: slowing the economy, relieving food shortages and tamping down
inflation.
The policies have worked. Real purchasing power has fallen during
2008 for the first time in three years, even while rising oil prices
have pumped billions and billions of more dollars into Venezuela's
treasury.
Adopting the monetarist policies that Friedman so famously championed
is likely to be only a temporary phenomenon, however. Analysts expect
Chávez to return to his free-spending, populist policies in the
run-up to the November state and local elections.
The latest economic policies show a pragmatic side of Chávez that is
not normally associated with him.
Still, the normally loquacious president has said little if anything
about reversing direction and adopting policies advocated by
mainstream economists.
Caracas-based economist Pedro Palma offers probably the best
explanation of why.
''The government is seeing that socialism is not functioning like
they want it to,'' Palma said. ``So they're having to follow basic
economics by adopting neo-liberal policies.''
The government has raised the interest rate that credit card
companies can charge, from 28 percent to 33 percent. Bank loans can
now cost 28 percent. Banks must now keep reserves of 30 percent for
new deposits, up from 17.5 percent. The government has also taken
money out of circulation by switching deposits of public money from
private banks to government institutions that do not lend the
funds.
''It is a restrictive monetary policy meant to reduce inflation,''
Palma said.
The results are already in.
Real purchasing power dropped 3.85 percent during the first four
months of 2008 compared to one year earlier, the first decline in
three years, said analyst Luis Vicente León.
Consumption dropped 3.2 percent during the first four months, he
added.
Economic growth during the first four months was 6 percent to 7
percent, compared with 8.8 percent a year earlier and 10.3 percent in
2006.
''I believe that the government is applying an orthodox economic
policy, but it is not doing so publicly,'' León said.
Inflation has slowed but is still galloping at the fastest clip in
Latin America, about 29 percent over the past year, threatening in
particular the higher standard of living acquired by millions of poor
Venezuelans during Chávez's nine years in power.
The net effect of his recent policies, Palma said, is to reduce the
amount of bolívares available for the purchase of goods.
Combined with other government policies meant to equalize supply and
demand -- the government reduced the interest rate that manufacturing
companies must pay for borrowing from 28 percent to 19 percent --
Chávez has reduced shortages of milk, chicken, eggs and other
products.
To be sure, Chávez has not become a free-market fan overnight. In
2008, he has also nationalized the country's biggest steel maker, a
major dairy company and a meatpacking company. Indeed, he raised the
minimum wage 30 percent this month.
Analysts expect him to begin spending heavily, with his political
reputation on the line in the November elections.
''In the second half of the year, the government will spend freely in
the street to win the elections,'' León said.
------------
Progchat_action is a non-partisan and progressive political news weblog,
chat, and action discussion alternative in cyberspace:
http://groups.
------------
"The hottest places in hell are reserved for those who in times of great
moral crises maintain their neutrality" - Dante
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe