From bust to boom: Chavez's economic legacy

Chavez leaves behind an inconsistent report card on 'pro-poor' policies that will only fuel a polarizing legacy as Venezuelans look to address future economic challenges.

Julia Buxton
7 March 2013

Chavez’s detractors moved speedily to condemn the former president’s legacy to his country. Nowhere was the negative impact of his fourteen years in office seen more acutely than in the ‘disarray’ of the economy. Chavez bequeathed to his country an ‘economic muddle’, with a ‘withered’ private sector, ‘warped’ public sector and a $100 billion foreign debt. This, driven by the failed logic of socialist economics which resulted in a state rife with inefficiency, bureaucracy and corruption. 

As a consequence of his perverse economic policies, critics claim Chavez damaged the constituency most important to him - the poor and economically marginalised. Although poverty has fallen from 42.8% of households to 26.7%, and extreme poverty has declined 57.8% from 16.6% of households to 7%, more could and should have been done given the high value of oil exports on which the government relies for 95% of foreign earnings. Not only did Chavez fail to help the poor, his economic model battered all social classes through price and exchange controls and resulting high inflation and shortages of goods. Or so the argument runs. And what better evidence is there of economic mismanagement than the long overdue 32% devaluation of the domestic currency carried out in February.

Those hostile to Chavez saw no redeeming feature in any aspect of his economic management. For the opposition Democratic Unity Alliance (MUD), oil export revenues that should have rightly been invested in the national infrastructure were frittered away through populist election campaigns, financial diversions to client states such as Cuba and into utopian regional integration projects such as the ALBA (Bolivarian Alliance for the Peoples of Our America) and Petrocaribe. Not only did Chavez abuse his country’s oil wealth for narrow ideological ends, he did so at the cost of alienating the US - Venezuela’s most important trading partner, to court likeminded authoritarian partners such as China, Iran and Russia.

Sitting uncomfortably next to this narrative of failure is one of prosperity as Venezuela recorded one of the region’s highest economic growth rates in 2012. Since the second quarter of 2010, Venezuela has enjoyed nine consecutive quarters of economic growth, with GDP growth over 5% last year. Countercyclical measures have enabled the country to turn around the crippling recession that marked the first years of Chavez’s third term (2006-2012) and the devastating impact of private sector stoppages that characterised his first and second administrations (1999-2006). There are questions around the sustainability of current economic growth, but the vibrancy of the economy has first to be acknowledged - as does the fact that there was no pre-Chavez golden period. On the contrary, Chavez’s predecessor’s bequeathed to him a 14% decline in per capita GDP accumulated over the period 1980-1998.           

Hostile commentaries on Chavez most usually emanate from the US and western Europe, which is bewildering given the parlous state of economies in these regions. Venezuela’s total debt stands at $100 billion, as opposed to the $2.43 trillion debt of Spain, the $2.49 trillion debt of the Italian state and the thumping $16 trillion US debt. The ratio of government debt to GDP for Venezuela is a modest and manageable 45.5%, which contrasts with the 79% figure for Israel, 85% level of the UK and 211.7% in Japan. And while the February devaluation is read from one side as indicative of economic mismanagement, the move has increased the state’s net revenues by almost 4% of GDP ($13bn), reduced the domestic debt from $42.9bn to $29.3bn, increased the value of oil export earnings and eased the pressure of the fiscal deficit. And while the profits of foreign firms operating in Venezuela have been eroded by the devaluation, not all capitalist investors and speculators are reeling. Holders of dollar denominated Venezuelan bonds are enjoying boom times.

The benefit of comparative analysis and reflection when evaluating Chavez’s legacy should be extended to assessment of the progress made in addressing poverty. For example, Miami Republican Congressman Connie Mack welcomed the death of Chavez, a man he and others of neoconservative persuasion claim ‘stole the wealth of his countrymen’. But the energies spent by US politicians deriding the poverty reduction achievements in Venezuela might be better spent focusing on the domestic situation in their home country, where the Foundation for Child Development recently reported one in five children live below the poverty line. The impact of the US financial crisis has wiped out the income growth gains of the 1990s, with the percentage of children living in families below the poverty level increasing from 15.6% in 2001 to 21.4% in 2011. During the recent boom years of America’s growth, never was it asked if it was sustainable for the rich to continue increasing their wealth. It would seem sustainability is only questioned when initiatives are pro-poor.

While the US congress fiddled during the Bush years and Obama’s first term, its relations with Latin America burned. Looking at the economic position of the US, Venezuela’s strategy of diversifying commercial ties from its Northern neighbour appears inherently rational. And it is not only Venezuela that sees the US as an economic albatross. Chile, Brazil, Mexico and other Latin American states have forged ties with China, Iran and Russia over recent years. The difference is that Venezuela’s economic expansion is spuriously linked to political provocation of America. But like its regional counterparts, Venezuela is eager to exploit the trade and investment opportunities presented by emerging and emerged economies and by public rather than private sector partners.

Evaluating Chavez’s economic legacy thus requires consideration of broader historical and international factors. Moreover an economic model that does not seek to be judged by the opportunities for private sector growth or profit repatriation should not be evaluated on that basis. The logic of the government’s economic strategy is a factor of its end goal: Twenty First Century Socialism. Without doubt there are economic pressures that will have to be addressed by Chavez’s successor, but assessment of these should not override acknowledgement of the advances that have been made.

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