But not all of the politicians in this region believe in free markets. They have turned back the clock. Venezuela’s President Hugo Chávez is the leader of the negative reformers. Following his bad example are Ecuador, Argentina and Bolivia. Chávez came to power in February 1999; he hails Cuba, the largest openair prison in the Americas, as his model. His revolution’s enemy is the marketplace.
According to the World Bank’s recently released “Doing Business 2008” report, Venezuela is tied with Zimbabwe as this year’s champion in smothering economic freedom. In terms of objective measures concerning the ease of doing business, Venezuela sank from 163rd to 172nd out of 178 countries covered. At present high oil prices are masking Venezuela’s economic sins. What happens when oil’s price comes back to earth? Don’t expect any surge of entrepreneurship to take up the slack in Caracas.
Oil prices have increased almost eightfold since Chávez took office and now account for 90% of Venezuela’s exports. Despite that, Venezuela’s economic performance under Chávez has been anemic; its gross domestic product per capita has grown at an average rate of only 2% per year. Inflation has averaged 34% a year, the highest in Latin America.
When Chávez assumed power the bolivar, Venezuela’s currency, was trading at 577 per dollar. In February 2003 the bolivar was pegged to the U.S. dollar at 1,600; in a desperate bid to stop the flight of hard currency, Chávez also put exchange controls in place.
These didn’t stem Venezuelans’ desire to dispose of bolivars as rapidly as possible. The official rate now: 2,150 to the greenback. But on the black market the bolivar is worth 64% less, 6,000 per dollar.
Chávez plans to ring in the New Year by lopping three zeros off the currency and issuing a “strong bolivar” at the exchange rate of 2.15 per dollar. This cosmetic change won’t alter anything.
Ecuador has been the most recent country to be caught up in Chávez’s Bolivarian Revolution. Rafael Correa, a trained economist, was sworn in as Ecuador’s new president on Jan. 15. Like Chávez, he is very popular, and clever like a fox.