Venezuela Has Most Distressed Economy on Earth

Published by By JACKSON DIEHL, Washington Post

Hugo Chavez has been keeping a relatively low profile of late -- there have been no grand world tours, no fiery speeches at the United Nations. The Obama administration, which once promised to "engage" the Venezuelan caudillo, is instead quietly shunning him.

There's a simple reason for this: The implosion of Chavez's self-styled "Bolivarian socialism" is accelerating.

Figures reported Tuesday by Venezuela's Chavez-controlled central bank portrayed an economy that is perhaps unique in the world in the degree of its distress. Gross national product fell 5.8 percent in the first quarter, while inflation remained at 30 percent. Private investment plummeted 27.9 percent as capital continued to flee the country.

Private economists suspect the economic contraction is even worse than what the official figures concede. But let's assume they are correct. Inflation in Caracas is triple the next-highest rate in Latin America (Argentina) and is more than double that of the next-worst economy anywhere (Pakistan) among the 56 tracked by The Economist's website. Even Zimbabwe, which used to be considered the world's economic basket case, looks good compared with Venezuela: It is expecting 6 percent growth this year, while inflation is under 5 percent.

In short, economic recovery is taking hold across the world -- except in Chavez's Venezuela.

Chavez's desperate measures to stop the free-fall are only making it worse. Recently, he abruptly moved to abolish the private currency market, which supplies the dollars for 30 to 40 percent of Venezuela's imports. The dollar exchange rate was soaring, so the government arrested a bunch of currency traders and announced that sales of dollars henceforth would be controlled exclusively by the central bank. The result will almost certainly be another drastic decrease in imports, the worsening of already widespread shortages in food and basic consumer goods, and the creation of a new black market in dollars.

The implosion of Chavez's potted socialism does matter to the rest of Latin America. It's not just that the Obama administration no longer needs to bother with the strongman, because he is doing an excellent job of self-destruction. It's that Venezuela's clients and imitators -- especially in Bolivia and Nicaragua -- stand to lose both subsidies and ideological sustainment from Caracas. Chavez's decade-long attempt to create a bloc of like-minded countries is in tatters.

With an election for the National Assembly coming this fall, Chavez has resorted to the Iranian tactic of disqualifying prominent opponents from the ballot. He will try to steal the election; if that doesn't work, he will try to strip the legislature of power.

No matter: Chavez appears powerless to stop the unraveling of Venezuela's economy -- and with it, his "revolution."