Chávez Discounts Accuracy of GDP

By DAN MOLINSKI and DAVID LUHNOW, published by the Wall Street Journal

President Hugo Chávez wasn't pleased with data released this week that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, "Socialist-friendly" gauge.

"We simply can't permit that they continue calculating GDP with the old capitalist method," President Chávez said in a televised speech before members of his Socialist party on Wednesday night. "It's harmful."

Mr. Chávez's comments came shortly after data showed Venezuela's gross domestic product -- a broad measure of annual economic output -- fell 4.5% in the third quarter from the year-earlier period. It was the second consecutive quarterly decline, and observers have questioned how Mr. Chávez will be able to generate growth without high oil prices.

The Venezuelan president isn't alone in suggesting traditional economic-output measures are too rigid. French President Nicolas Sarkozy recently said his country, in addition to measuring GDP, would start gauging prosperity by including factors such as vacation time, health care and family relationships.
[Dismal Quarter]

An economic commission headed by Nobel Prize winner Joseph Stiglitz supports such moves, saying every country should design its own basket of indicators that would include factors such as unemployment, security, and income inequality.

Both France and Venezuela argue their citizens are better off than economic data suggest. French workers have generous social-security benefits and vacations. Mr. Chávez said free health care in Venezuela isn't counted in economic output because money doesn't change hands.

The most famous example of this line of reasoning is the tiny Himalayan kingdom of Bhutan, which has tried to measure gross national happiness instead of GDP.

Mr. Chávez has criticized GDP in the past, but had been quieter on the subject in the past few years, when high oil prices fueled a spending binge by his government and Venezuelan consumers that led to average annual economic growth of about 10% from 2004 to 2008 -- the highest in Latin America, according to International Monetary Fund data.

Now that oil prices are less high, economists say Mr. Chávez's stepped-up government spending and nationalizations of various industries are taking their toll, causing a combination of high inflation from the spending and weak growth from a lack of investment by local businesses. Economists forecast continued weak growth for Venezuela next year, worrisome for a leader who has relied on spending to stay in power for more than a decade.

Some analysts worry Mr. Chávez might follow in the footsteps of leaders in Argentina, where the government changed the way it measured inflation in a move that was widely seen as an attempt to camouflage rising prices and that has added to investor distrust of Buenos Aires.

"It's hard to say if [Mr. Chávez] is serious or not," said Robert Bottome of publisher VenEconomía. "They've already tampered with the way they compute unemployment and how they determine how much oil [state oil company] PdVSA exports. So why not tamper with the economy figures as well."

Petróleos de Venezuela SA, known as PdVSA, routinely reports oil-production and export figures that are higher than independent estimates.