No Easy Money for Venezuelans : President Caldera has backtracked on his pie-in-the sky promises

It took 26 months back in the saddle for Venezuelan President Rafael Caldera, a populist caudillo of the old school, to understand that his statist brand of government no longer works. A repentant Caldera has finally announced sweeping changes that should point the Venezuelan economy in the right direction.

The old man, who previously was president in the early 1970s, caved in to imperatives of a free-market, internationalist economy after running through two finance ministers, four planning ministers, four development ministers and at least eight failed economic plans. The new plan, submitted by Planning Minister Teodoro Petkoff, a onetime Communist guerrilla, calls for a radical shock to break Venezuela’s reliance on strong central control.

So the Venezuelans are now back where they were in 1989, when President Carlos Andres Perez saw the writing on the wall and delivered the same message on economic reforms. When Perez struck a deal with the International Monetary Fund, however, Venezuelans took to the streets. The rioting in Caracas left 300 dead, sparked two failed military coups and turned a shamed president out of office.

Caldera returned in 1994, convincing his people he could revive the good old times when an ocean of oil provided most everything that Venezuelans wanted. There was no need to reform, privatize or deregulate, he said; the oil belonged to the people. How’s this for a campaign promise: Subsidized gasoline would be marketed at 0.13 cents a gallon.

The bubble burst about two years later. First, Caldera was caught off guard by a financial crisis that swallowed half the banking sector. In a desperate attempt to regain control of the economy, the old populist imposed price and currency controls, which, in turn, drove off investors and sent inflation skyrocketing to the highest level in Latin America. In 1995, the non-oil economy struggled to a growth of only 0.2%.

The failure of Caldera’s policies forced him to backtrack on nearly all his election promises. Now, the 80-year-old leader has announced a fivefold increase in fuel prices and a deal with the International Monetary Fund.

Curiously, this time there seems to be widespread acceptance of the painful medicine, reflecting perhaps the depth of Venezuela’s financial straits. But there is a lesson to be learned. There are other politicians in Latin America promising wealth without cost. These demagogues should be unhorsed. There is no viable economic model now but that which melds with the global economy. Those who don’t believe it should visit Venezuela.