By Liz Peek
How much will President Obama's handshake with Venezuela's Hugo Chavez cost the U.S.? Despite Chavez' bombastic rhetoric about his socialist revolution, the reality is that Venezuela is going broke. While the president's overtures to Chavez at the recent Summit of the Americas have been greeted ecstatically by many in the media, there has been little attention as to why Chavez may so desperately crave rapprochement. (And guess what? It appears to have nothing to do with Obama's politics.)
These days Chavez has a problem. Sinking oil revenues have left him saddled with whopping budget deficit (estimated by the Economist Intelligence Unit at 5.2% of GDP). Denied access to overseas borrowings, Chavez will likely have to increase domestic borrowing by as much as $16 billion, according to The Economist magazine. He may also be forced to cut spending, in real terms, by over one third. Recently, the government has hiked the VAT to 12% - up from 9% - but other revenues will also be needed. Monies that were purportedly saved for a rainy day, some $57 billion in a National Development Fund, appear to have vanished.
Failing economic policies, such as nationalizing industries, subsidizing price controls on gasoline (which costs locally just $0.17 per gallon) and artificially supporting currency levels have led to inflation of better than 30% and declining growth rates. A recent 20% hike in minimum wage will only add to the economic disaster that looms, though it should also protect Chavez' popularity among his loyalists. Desperate measures earlier this year included expropriating food companies to mandate higher levels of (unprofitable, price-controlled production).
Short of a miraculous recovery in oil prices, Chavez is facing a crisis. Without surpluses quieting his opponents and funding his popularity campaign, he may not survive. His out? Befriend the new president of the United States, who is so desperate to distinguish himself from his predecessor that he will doubtless jump at the chance to buy Chavez' friendship. What will be the price of that handshake? $16 billion?