Chavez's Economic Problems Turn Nasty

For a long time I have been saying (along with a lot of other people), that Hugo Chavez was running his country into the ground.  He diverted investment funds from PDVSA, Venezuela's state-run oil company, into social programs.  As long as the price of oil kept rising, he could do that.  Unfortunately, Venezuela's sour, heavy crude is particularly hard to get at and refine, and requires a high rate of investment in order to keep production up.  As a result, the number of barrels per day (bpd) that Venezuela produces has declined pretty sharply since he took office in 1999.

As a consequence, the money that Chavez used to paper over the cracks in his socialist paradise has vanished, and the cracks are deepening:

President Hugo Chávez has been facing a public outcry in recent weeks over power failures that, after six nationwide blackouts in the last two years, are cutting electricity for hours each day in rural areas and in industrial cities like Valencia and Ciudad Guayana. Now, water rationing has been introduced here in the capital.

The deterioration of services is perplexing to many here, especially because the country had grown used to cheap, plentiful electricity and water in recent decades. But even as the oil boom was enriching his government and Mr. Chávez asserted greater control over utilities and other industries in this decade, public services seemed only to decay, adding to residents' frustrations.

With oil revenues declining and the economy slowing, the shortages may have no quick fixes in sight. The government announced some emergency measures this week, including limits on imports of air-conditioning systems, rate increases for consumers of large amounts of power and the building of new gas-fired power plants, which would not be completed until the middle of the next decade.


This comes on top of the sporadic food shortages that result from price controls combined with high inflation.

Chavez's solution to these problem has been to go militaristic on neighboring Columbia.  Apparently, he's stepping up the rhetoric:

So few were terribly surprised Sunday when Mr. Chávez sidestepped those subjects on his weekly television show -- and instead appeared to declare war on neighboring Colombia. "Let's not waste a day on our main aim: to prepare for war and to help the people prepare for war," the strongman told his military leaders.

The bluster was taken in stride by most Venezuelans, who according to a recent poll oppose conflict with Colombia by a margin of 4 to 1. Venezuela's largest newspapers played the story below other news. Even the Colombian government's response was relatively low-key, though it talked about appealing to the United Nations and the Organization of American States. The State Department blandly suggested "dialogue" between the two countries.

We'll accept that this is just another instance of Mr. Chávez's buffoonery. Still, it's worth noting: This is the second time in less than 18 months that Mr. Chávez has ordered troops to the Colombian border and suggested that hostilities were imminent. In the past few years he has spent more than $4 billion on arms purchases from Russia alone. He claims to be worried that a recent U.S. agreement with Colombia, under which U.S. Air Force and Navy units will have expanded access to military bases, is meant to facilitate a U.S. invasion of Venezuela. In fact, he has something to worry about: The bases will be used for U.S. drug surveillance flights, and Mr. Chávez is known to be cooperating with terrorist organizations that are trafficking drugs from Colombia through Venezuela.

No one thinks war is imminent; they think it's just bluster to stir up patriotism and channel it through the figure of one Hugo Chavez.  But then, as the article points out, no one really thought Argentina would invade the Falklands, either.  Desperate times make desperate men.  And while he's still popular now, his polls are slipping rapidly, showing him close to, or under, the critical 50%.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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