Desperado
By MARY ANASTASIA O'GRADY
February 4, 2008; Page A14
In 1981, Argentine inflation topped 130%, and by the early months of 1982
the situation was rapidly deteriorating. A web of price controls designed
to compensate for monetary mischief at the central bank only made things
worse. Confidence had collapsed and civil unrest was growing.
The military government's decision to lay claim to Britain's South
Georgia Island on March 19, 1982, and later the Falklands, was dictator
Leopoldo Galtieri's last-ditch effort to boost the nation's sense of
strength, and to distract it from the reality that it was caught in an
economic maelstrom.
[Hugo Chavez]
Fast forward to 2008 and Venezuela, where the parallels cannot be
ignored. The military government of President Hugo Chávez is engaging in
provocations against a foreign power that would seem to have little
purpose other than getting news of the crumbling economy off the front
pages and ginning up nationalism.
In a speech before the national assembly last month, Mr. Chávez dropped a
bombshell, proclaiming that Venezuela now recognizes the Colombian rebel
group known as the FARC as a legitimate political actor. He went on to
ask that European and South American governments remove the group from
their terrorist lists. A day earlier his special envoy for FARC relations
went public with his own fondness for the Colombian rebels, and with the
news that the Venezuelan government stands ready to help them.
This was more than Mr. Chávez playing footsie with the FARC, which he has
long been doing. This was a statement of official sup****t for a band of
outlaws who seek the destruction of the Colombian democracy. The news
shook both nations. It suggested that Colombia is not only at war with
the rebels, but also with a neighboring state.
Mr. Chávez probably doesn't really want war with the militarily superior
Colombia anymore than Galtieri wanted to battle it out with Britain. But
by poking his neighbor in the eye, he was undoubtedly hoping for some
kind of a reaction, to which Venezuela naturally would be obliged to
respond. Amid an escalation of tensions between the two countries, a
nationalist outcry to defend Venezuelan honor might dwarf the many
troubles at home.
Colombia's president didn't take the bait. Instead of getting in a
spitting match with Venezuela, Álavaro Uribe went to Europe shortly after
Mr. Chávez's FARC speech to shore up sup****t for his anti-terrorist
agenda. He came home with backing from E.U. foreign policy chief Javier
Solana, French President Nicolas Sarkozy, and even Spanish Prime Minister
Jose Luis Zapatero, who is notorious for his admiration of Latin American
leftists. Mr. Chávez thus suffered yet another humiliation, only six
weeks after he lost his bid to rewrite the country's constitution.
Hubris aside, Mr. Chávez had to know that his defense of the FARC was a
long shot. But desperate times call for desperate measures. As the
deterioration of the Venezuelan economy accelerates, Mr. Chávez is fast
becoming a desperado with no better idea of how to get out of his jam
than did Galtieri.
Central to his troubling cir***stances is inflation. With Venezuelan
crude oil around $80 per barrel, the local currency known as the bolivar
ought to be strong. But the central bank has lost its independence and
now acts as an arm of the Chávez government. As such it has shown little
interest in defending the value of the currency.
Instead, it uses the gusher of oil dollars coming into the country as a
reason to print up new bolivars to be put into circulation through
government spending. This has pushed up demand and sent prices
skyrocketing.
Just what Venezuelan inflation is now is anybody's guess. The government
figure for 2007 is 22.5% but that number is derived from a basket of
goods that includes price-controlled items, which are difficult to
actually buy. In real life, when Venezuelans go shopping they have to pay
market prices if they want to come home with the goods. This means that
the cost of living is higher than the official rate.
Price controls haven't held down inflation but they have produced
shortages of the goods they cover. Milk, rice, cooking oil, chicken,
beef, ****k, sugar, black beans and eggs are all hard to find and
Venezuelans say that grocery shopping now requires stops at five or six
stores. The most reliable sources of price-controlled items are street
vendors, who charge two and three times the legal limit but tend to have
stock.
Even Mr. Chávez recognizes that the shortages are real and not about to
go away. And despite what appears to be a primitive understanding of
economics, he may even have figured out the connection between prices and
supply. This would explain why, as dire milk shortages became undeniable
in recent months, he finally decreed an increase in the regulated price.
But don't hold your breath for further signs of enlightenment. Control of
the oil industry has been the main reason Mr. Chávez has been able to
squelch democracy. His own warped logic suggests that he needs to control
other key sectors if he wants to keep his grip on power. If he can
strangle the private sector, he can starve his adversaries.
This is why he is promoting government-owned food processors and has put
a full-court press on private-sector agribusiness. Price controls now
apply not only to the retail market but also to business transactions.
This is designed to stop, for example, dairy farms from diverting raw
milk to the production of cheese and yogurt, which have no price
controls. Anyone caught violating price controls or selling products
across the border in Colombia risks expropriation.
All of this is being policed by the army. With its monopoly on the use of
force, the government can indeed destroy the private sector. But as
Galtieri found out, it cannot decree that supply meets demand. As
shortages become more acute, don't be surprised to see the Venezuelan
desperado picking more fights.
Write to O'Grady@[EMAIL PROTECTED]
FREE GILAD SHALIT, EHUD GOLDWASSER AND ELDAD REGEV!
http://www.banim.org
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