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September 09, 2013

A tale of two malls sheds bleak light on Venezuela economic policy

Herald contributors Andrew Rosati and Ezra Fieser have written an excellent story about twin malls -- one built in Venezuela and the other in the Dominican Republic. It's a stark example of how economic policy really do make a difference. Take a read: 

BY ANDREW ROSATI AND EZRA FIESER

SPECIAL TO THE MIAMI HERALD

CARACAS -- When Hugo Chávez ordered the government to take over a nearly finished shopping center in central Caracas in late 2008, he told a cheering crowd that the mall would be better used as a hospital, a school, or a university.

“No, no and no!” he said of the luxurious Sambil mall slated to open in the Candelaria neighborhood.

Before a single product was sold, the mall became one of the more than 1,000 businesses and properties Chávez expropriated during his 14 years as president.

Four and a half years later, the mall-that-wasn’t takes up an entire city block. It’s cordoned off from the public for most of the year. Since the seizure, its parking garage has seen service as a makeshift shelter for Venezuelans who have lost their homes to flooding. Designed to uplift a decaying neighborhood, its brick and granite façades are covered by a mosaic of murals marred with graffiti and campaign slogans.

Compare that to a $200-million sister mall in the Dominican Republic — built by the same Venezuelan developer, Sambil.

When it opened earlier this year off a busy highway in the capital of Santo Domingo, President Danilo Medina cut the ribbon. With a 16,000-square-foot indoor aquarium, a grocery store, movie theater and 325 shops, this Sambil mall is thriving.

The stark contrast between the two malls provides a window into the lasting effects of Chávez’s populist-driven relationship with Venezuela’s private sector.

Chávez, who died in March, antagonized private businesses, especially small and medium-sized enterprises, spurring them to take their money elsewhere — leaving Venezuela struggling to attract investment to fix its crumbling infrastructure.

Not only has money failed to come in, but Barclays Capital, an international investment bank, estimates companies have taken some $150 billion out of the country since currency exchange controls were instituted a decade ago. In part, they were supposed to prevent capital flight. An average of $20 billion a year has been sent abroad over the past five years.

Chavez’s successor, Nicolás Maduro, is now picking up the pieces of the government’s broken relationship with the private sector.

Faced with a polarized country and stumbling economy, Maduro recently met in private with prominent business leaders, raising hopes he might be willing to work with those who Chávez alienated.

Economists said a fresh round of investment could help stock the shelves of stores that have sporadic shortages of products as basic as toilet paper, milk and sugar.

And without the investment, they say, the government is unlikely to stem rampant inflation, now at nearly 43 percent.

“There have been many meetings and announcements, but there has yet to be any substantial changes,” said Alejandro Arreaza, an economist with Barclays Capital.

LEGACY OF CHAVEZ

Chávez’s policies drastically reduced poverty by providing housing, education and pensions to the poor. But in the process, he chased away private businesses, despite instituting measures to try to keep their investments from flowing abroad.

As the government’s relationship with private industry deteriorated, Chávez increasingly turned to expropriations as a means to achieve his goals. Many expropriations took place after a business refused to go along with Chávez’s policies, such as price regulations. 

Read the full story here

ABOUT THIS BLOG

jim wyss

Inside South America is written by Jim Wyss, the South America bureau chief for the Miami Herald and McClatchy Newspapers.

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