April 10, 1996

Market reforms needed in Venezuela
Cato study warns of potential for "societal Molotov cocktail"  

Venezuela's rejection of market-oriented economic policies has had dismal
consequences and should serve as a warning to other Latin American
countries, according to a new Cato Institute study.

In "Venezuela: From Showcase to Basket Case," analyst Roger Fontaine argues
that Venezuela is following "discredited statist policies, which could lead
to nationwide catastrophe within a decade or less."  He also notes that
economic liberalization in Venezuela is inhibited by political and business
elites unwilling to make needed changes that go against their immediate
self-interest.

"Either Venezuela will introduce market reforms or it will see some form of
social catastrophe," writes Fontaine.  He urges privatization of the oil
monopoly, elimination of corruption through judicial reform and
constitutional recognition of widespread property rights.

Despite the worsening economic crisis, market reforms are currently viewed
by Venezuelans with suspicion, according to Fontaine, and it may take a
hyperinflationary economic crisis to spur change. 

"Venezuela is more vulnerable than are other Latin American countries,"
Fontaine says. "Nowhere else in South America is there a political culture
that has so thoroughly divorced reward from work. Nowhere else is social
mobility so restricted by a poor educational system and a regulatory maze
that totally discourages entrepreneurship.  Add to that a middle class that
is being impoverished and a tiny sector of enormously wealthy people who
have done little to earn their wealth.  Those are the ingredients of a
societal Molotov cocktail."

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Policy Analysis no. 251