Fears emerge over the Venezuelan boom

Updated: Mar 31 2007, 07:03am hrs
Ricardo Diaz has rarely seen a year like 2006, when high-priced luxury cars almost flew out his familys small showroom in an upscale district of this bustling capital. Record oil prices and free-spending government programs over the past few years have sparked a consumer frenzy in petroleum-rich Venezuela. The wealthy have been snapping up expensive cars and designer-label clothes and jewelry, while even poor neighborhoods are flush with cash from social programs created by leftist President Hugo Chavez.

There is even a boom in shopping mall construction: seven went up last year in Venezuela, with a dozen more slated to open this year. Some car dealers report brisk sales, with months-long waiting lists. Last year, Venezuelans bought 343,000 cars and trucks, a jump of 50 percent over 2005.

With its economy staked on oil, Venezuela has seen booms before, most recently during the energy crisis of the 1970s, when it earned the nickname Saudi Venezuela. The inevitable bust came in the 1980s, when the economy stumbled with high unemployment, inflation, inefficiency and corruption.

If the recent frenzy is different from those past, a key factor is Chavez. The charismatic firebrand is a fierce critic of President Bush, despite the fact that Venezuelan oil accounts for more than 10 percent of U.S. imports. Fresh from a landslide re-election victory in December, Chavez has nationalized telecommunications and electricity production and is taking over oil fields from international firms. He has channeled billions into social programs at home, creating employment and hope for the 80 percent of Venezuelas 26 million residents who live in poverty.

The poor have the highest propensity to spend any extra money and the social programs have been putting money in their pockets, said Luis Vicente Leon of Datanalisis, a Caracas polling firms that tracks social and economic trends. They are still poor, but they have been buying basic products to make their lives better.

But many here worry the boom times could be coming to an end. Inflation has jumped to 20 percent, imports are more expensive because the local currencys value is dropping and Chavez has moved to nationalize key sectors of the economy, vowing to make Venezuela a socialist country. Its very contradictory, said Diaz. The petro-dollars and government contracts have made a lot of people rich. Last year everybody was selling like mad. But this year it has slowed down because of the uncertainties. Prices are rising and nobody knows if Chavez will strangle private companies.

NY Times / Mike Williams