Venezuela: It’s The Economy, Stupid

Venezuela is doing alright. And before we go any further we’re not talking politics here, okay? No choices of colour for your shirt, no clenched fists, no TV channels, no cracks about ‘devils’, no students, no mass rallies. No politics at all. Not even going to mention the name of that guy over there. You know…begins with the letter “C”.  

Here’s the link  to an excellent report on the current macroeconomic state of Venezuela written by Mark Weisbrot, economics Ph.D and co-director of the Center for Economic and Policy Research (CEPR).  

Anybody who is interested in the economic situation of Latin America should read this report with an open mind. Weisbrot addresses the issues and to a greater extent does not fall into the trap of politicizing the economic figures. He notes the good and bad parts of the current situation, which is refreshing. I also found it refreshing to see an economist say something out loud that this equities analyst has recognized for at least 2 years; that the foreign exchange rate policy is the greatest problem facing Venezuela’s economy, and not the much headlined and misunderstood rate of inflation or social spending.

I await constructive comments. If he’s right, tell me why. If he’s wrong, tell me why not. Just don’t bring your politics to the table, people.

2 Responses to "Venezuela: It’s The Economy, Stupid"

  1. JohnH   August 8, 2007 at 11:57 am

    Mark, Thanks for posting this. It’s interesting that there have been no replies to dispute Weisbrot and Sandoval’s analysis and to defend the conventional wisdom. Let’s hope that future comments here and in the mainstream media will be constructive and analytical rather than ideological and defamatory.  Two points that emphasize the success of the Venezuelan economy: 1) it is the fastest growing major petro-state; 2) it is among the fastest growing countries in Latin America. Therefore, growth cannot simply be attributed to the oil boom or to a recovering regional economy.  I agree with Weisbrot and Sandoval that exchange rate policy is something of a conundrum. However, Venezuela’s overvalued currency does compensate for the fact that the currency of its major trading partner, the United States, is about equally overvalued.  About a year ago, the Center for International Development at Harvard held a conference focused mostly on the collapse of growth in Venezuela after the 1970’s.  One of the more interesting analyses was that of Matias Braun. He noted that “When the size of its economy is taken into account Venezuela’s financial system is today one of the smallest and least developed in the world. Bank credit to the private sector amounts to just around 9% of GDP, ranking the country in position 132 out of the 157 countries where the figure is available for the 2000s.” It would be interesting to know if this will be a constraint on future growth. Weisbrot and Sandoval note that finance and insurance have been the fastest growing sector. And the government has sought to grant titles to people who built houses on government and private lands decades ago, thereby creating the possibility of a much larger real estate market. Still, you have to wonder if sufficient private credit is available to stimulate the private sector, particularly small business.

  2. Guest   August 9, 2007 at 4:10 pm

    How is the foreign exchange rate policy is the greatest problem facing Venezuela’s economy? Can you flesh out this point? Not clear to me.