Cursed By Black Gold

Economists--and even politicians--have long understood that an excessive dependence on one commodity can be unhealthy. But, in Hausmann's view, it's the country's very dependence that prevents diversification: ups and downs in the price of oil result in gigantic exchange-rate fluctuations, which turn investment decisions into a game of roulette and raise interest rates to a point at which no legitimate business can afford to borrow. Deep structural problems are left to fester whenever oil prices rise. While neighboring Colombia, for example, has diversified into nontraditional exports like cut flowers, oil still accounts for a third of Venezuela's GDP. "You could almost say the oil rents have murdered the non-oil economy," says energy specialist Victor Poleo.

The past four years under Chavez have only increased the country's dependence on the black stuff. Thousands of industrial and commercial concerns outside the oil sector have gone bankrupt, partly because of competition from cheap imported goods. Unemployment--already high--may now top 20 percent. Indeed, more than half the work force is outside the formal economy.

But the most combustible element of Chavez's rule could be the rhetoric he reserves for his opponents. By laying all the blame on the rich, the president--his critics say--is reinforcing the notion that all personal wealth is a result of theft. "If everyone who drinks whisky in a restaurant is a crook," says economist Martinez, "you're not offering people any incentive to work. If society adopts these values, we're headed for chaos." And if that's all Chavez can bring his supporters, they may soon believe they have a fifth rat on their hands.

© 2003