National Agenda : Venezuela’s Short Slide to Economic Obscurity : Just 10 years ago, it was among the Western Hemisphere’s richer nations. Now, it has a debt-ridden, shrinking economy.

There is no freeway exit to central Caracas, only a twisted series of alleys and ominous side streets that take a driver from the illusion of modern life into the reality of a country fast tumbling backward.

The 1970s-vintage freeway appears modern--six, sometimes eight, lanes wide, well-paved and designed. A product of Venezuela’s oil-sparked dreams of First World existence, the road was meant to give Caracas the sense of mobility and liberation of the city it supposedly resembles most: Los Angeles.

But something went wrong with the freeway and with the dream that Venezuela shaped out of the sea of oil that oozes beneath its 20 million people.

A product of poor planning and underfinancing, the exit into the city center was never finished, the ramp ending 12 feet above nowhere. The only way on and off is through narrow and unmarked passages lined by rusted hulks of old cars and men stretched out in gutters beside sordid, unlighted corner bars.

Economically and politically, Venezuela is symbolized by both the unfinished highway exit and the worn-out, abandoned automobiles; or, as one diplomat put it, “a baby giant who grew into a pygmy.”

“This is a country,” he said, “that was one of the richest in the Western Hemisphere just 10 years ago and was positioned to become among the richest in the world. Now look at it. It’s worse than a mess.”

Statistics seem to back up the dour assessment.

According to a United Nations report on Latin American and Caribbean nations, the economy of Venezuela, one of the world’s top oil producers and the No. 2 exporter to the United States, shrank 3.3% in 1994. Only Haiti’s was worse. In contrast, Peru registered nearly 11% growth in its gross domestic product.

Venezuela and Honduras tied for worst in budget deficits with about $7 billion each.

Unemployment is now listed officially at 8.7%, but diplomats say only 45% of the work force is part of the formal economy. The rest survive on such activities as street vending, day work and begging.

Diplomats estimate that 30% of the country lives in dire poverty and 50% in general poverty. The rest range from middle class to a thin veneer of the rich.

Venezuela did finish first among the Caribbean and Latin nations in one U.N. category: inflation. The rate, optimistically calculated, was 80%, the second highest in the country’s history and far in excess of such once-inflation-ridden countries as Brazil.

In areas not measured by the U.N. study, Venezuela also suffers. Its banking system has all but collapsed, and the government has pumped in nearly $8 billion to keep the industry functioning. The owner of one of the four or five solvent banks said he no longer opens new accounts or makes loans.

“We aren’t banks in a real sense anymore,” he said. “All we can do is try to protect the assets.”

On the surface, the reason for this dive into the economic abyss was the collapse of oil prices in the early 1980s and the continuing stagnation that has kept the value of a barrel of Venezuelan crude below $20.

“This was a country that budgeted on the basis of $40 oil,” one foreign economist said, “and thought the price would be at $100 by now. It’s the same as if you planned your life, bought a house, a boat on the basis of earning $100,000 a year, but when it came time to pay, you found your pay was $15,000.”

That may be a bit too facile. In spite of the unmet revenue expectations from oil and the financially and sociologically draining policies of a state-dominated economy, Venezuela was poised in 1991 to move back into contention as a developed nation.

Under the administration of President Carlos Andres Perez, Venezuela in 1991 put together an economic and political reform program that was pulling the country into a free-market system with potentially low inflation, high growth and lower unemployment.

Then Venezuela, as one American banker put it at the time, “committed suicide,” as Andres Peres (who was impeached and convicted of embezzling millions of dollars) and his various interim successors chipped away at the reforms that had revived the economy.

The current president, Rafael Caldera, elected two years ago, is an old-fashioned authoritarian and economic nationalist who served as president nearly 30 years earlier. He did away altogether with the reform package and substituted a confusing approach that has seen at least five major changes in policy. Besides rejecting free-market policies, he has instituted programs even central planning economists acknowledge do not work.

In June, for instance, Caldera, who has suspended most constitutional civil liberties and congressional checks, imposed a fixed foreign currency exchange rate and put a ceiling on prices of 90 goods and services in an effort to stop a run on the local money and slow inflation.

It didn’t work. Inflation, after dropping to a 35% annual rate early in the year, is back on the 1994 record pace.

In addition, Caldera’s policy led to a blooming black market in currency and goods, shortages of everything from electronics to eggs and a loss of international credit at a time Venezuela is due to repay about $7 billion in loans.

“Caldera is a bad economist,” one diplomat said, “but he is a first-rate politician whose main goal is to placate the poor and avoid any social outburst. Everything he has done has been based on that.”

Thus, when faced with growing inflation, Caldera ordered that all lower-paid private sector workers be given a $3-a-day “bonus” to offset rising living costs. Public employees are expected to be included shortly, increasing inflationary pressures even further.

Neither Caldera nor any ranking economic official in his government would comment, but diplomats and private economists say the president believes that he can “muddle through” on the basis of the country’s still-prodigious oil wealth.

Venezuelan oil sells at an average of just under $16 a barrel and has a near-captive market in the United States, which has become heavily dependent on Venezuela crude. The state petroleum monopoly accounts for two-thirds of the nation’s export earnings, nearly 53% of the nation’s tax revenue and 20% of gross domestic product.

As long as Caldera can control the poor he can survive, said the foreign banker, who added: “But the real question is, can Venezuela survive after Caldera?”

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Oil Addiction

Venezuela is among the world’s largest oil exporters, and a major customer is the United States. But oil hasn’t been enough to solve its economic problems.

* Oil exports, thousands of barrels per day (1993)

Saudi Arabia: 7,865

Iran: 2,515

United Arab Emirates: 2,280

Russia: 2,170

Venezuela: 2,145

Kuwait: 1,915

Nigeria: 1,780

Libya: 1,290

Algeria: 1,070

* Oil imports

Of crude and refined products from Venezuela, thousands of barrels per day (1993)

Total OECD* imports: 1,597

U.S. imports: 1,285

* Organization for Economic Cooperation and Development--25 nations

Source: CIA Handbook of Economic Statistics, 1994