Venezuela: Scarcity amid abundance

Por Venezuela Real - 24 de Abril, 2007, 19:54, Categoría: Economía

The Economist
April 24, 2007

On the last Saturday in March the broad Avenida Bolívar in the heart of Venezuela's capital was transformed into an open-air, government-run "mega-market". Shoppers, mainly from poorer parts of the city, formed orderly queues to buy food at officially regulated prices—something that is often impossible in ordinary shops. "How can there be scarcity in a country with so much land and resources?" asked Ramón Díaz, a pensioner, as he rested on a bench after doing his shopping. "Who controls the supply of meat? The oligarchy has it monopolised."

Who controls the food supply and why a fertile and oil-rich country should have problems getting food to its 27m people are questions that pit the leftist government of Hugo Chávez against much of the private sector. Venezuela has one of the world's highest inflation rates (see chart). Food prices are rising even faster than the overall index. That is despite—or because of—the fact that food, medicines and basic services have been subject to price controls since 2003. Meat, milk, black beans and sugar are among many products that, from time to time, disappear from the shelves—even those of Mercal, the government-run supermarket chain. Often, though, these goods can be found at much higher prices in the hands of street traders.

The government has a simple answer to the conundrum. "It's part of the curse of capitalism," according to Mr Chávez. In February he declared war on "hoarders and speculators", issuing a decree mandating jail sentences of up to six years for anyone interfering with food supplies. The government promptly seized a slaughterhouse and a cold-store.

Many businessmen and shopkeepers have a different view. They complain that controlled prices are set so low that they are obliged to sell at a loss. If they don't, they risk fines, temporary closure, expropriation or even imprisonment. In late March, for instance, the government temporarily closed 17 butchers' shops it accused of breaking price regulations. Mr Chávez has said that if he has to take over the entire food industry he will, although many Venezuelans doubt the government would be capable of running it.

Officials usually say that the problem is hoarding, not shortages. But Jorge Giordani, the planning minister, recently admitted that an overheating economy (it grew by over 10% last year) was causing inflation and scarcity. Public spending has doubled in the past two years. There are two other factors, says Pavel Gómez of IESA, a Caracas business school: the price controls themselves, which have boosted demand and cut supply, and an expectation that prices will rise further, leading people to bring forward purchases.

To make matters worse, the government recently curbed imports, ostensibly to protect local manufacturers. Some of them now complain that they cannot obtain the materials they need to make their products. Many businessmen are reluctant to invest, citing uncertainty over Mr Chávez's intentions and lack of legal protection. In which case, say government supporters, the state should step into the breach. Expect more shortages.

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