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martes, noviembre 01, 2005

NYT on 21st-century socialism

The New York Times ran an article on Sunday about the Chavez administration's economic strategy, under the Chavez-coined moniker of "21st-century socialism."

It glosses over a lot of details, and in doing so, misrepresents some of the programs: for instance, it twice says that the cooperatives have all been created diectly by the government. In reality, although the government is supporting and promoting the formation of cooperatives, very few are directly created by the state. Mostly they're created by the cooperative members, just like any small business.

Of greater concern is their reliance on unnamed sources (or, I suspect, no primary sources at all) to create the impression that Venezuela could face a looming crisis triggered by flight of foreign companies if it doesn't rein in its "socialist" tendencies.

First they note that no such flight is happening, and in fact, both Venezuela and foreign companies there are doing quite well:

So far, no noticeable exodus of foreign companies operating in Venezuela has
occurred. Banks and oil companies are making record profits thanks to oil
prices that have left the country, the world's fifth-largest exporter, awash in
petrodollars. This year, the oil industry is generating $20 billion for the
government, nearly $8 billion more than last year.


Still, there is restlessness in the boardrooms, with executives worried about
government intervention, which is sometimes seen as haphazard and improvised.

What boardrooms? Which executives? Was anyone interviewed to corroborate these claims?

Economists say the government has not made the investments needed in the oil
sector. And political analysts and mainstream economists warn of recession and
dourly note that foreign investment is about a third of what it was five years
ago. They say that Venezuela's vast oil profits give the illusion of prosperity
- the economy's growth rate is 9.3 percent - but that if prices fall, or
Venezuela's growing spending catches up, the economy could founder.


I certinaly agree that Venezuela's dependence on oil is a major problem. But I still have to ask, which economists and political analysts say this? The article quotes Domingo Maza Zavala, the director of Veneuzela's Central Bank, but his comments don't particularly support most of the above paragraph.

What economic principle dictates how much investment is "needed"? By what measure is prosperity defined as a "illusion"? One might argue that it's unsustainable, but that growth rate is real, at least for now. Finally, government spending in Venezuela is growing by leaps and bounds -- I can't imagine how much faster it would have to grow in order to "catch up", if that formulation even make sense.

Despite these shortcomings, overall I think it's a decent article, and a nice short synthesis of what's going on in Venezuela from a business standpoint. You can read it here (hopefully the link works; I've been having trouble with the NYTimes site today).

Comments:
Just happened to see this market report today classifying Venezuela as a stable, low-rick place to invest.

"Political, social and economic growth risks are low. Fiscal and balance of payments risks are also low. High oil prices will contain the central government deficit and support very strong export growth again in 2006. Public sector debt and total external debt levels are low and will decline further in 2006 while foreign exchange reserves will increase. Investment risk in Venezuela is low and will remain low through 2006."

Guess these are not the analysts the NYT talked to...
 
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