Venezuela steps up nationalist rhetoric as economy worsens

Flanked by puffy-faced generals, Nicolas Maduro unveiled a 1.2km long flag this week, swore to crack down on businesses and railed against the imperial US - even as Cuba, the Venezuelan president's closest ally, pursued detente with Washington.

"We are going to radicalise the revolution," Mr Maduro roared at the military rally in Caracas on Monday. "Enough with the smirks of the bourgeoisie," he thundered from the stage.

The contrast between Mr Maduro's fiery rhetoric and Havana's softly-softly approach to Washington is stark. On Tuesday, the US removed Cuba from its list of state sponsors of terror - making it possible for Havana to obtain multilateral funding and easing financing from third country commercial banks.

Mr Maduro's escalating nationalist agitprop - including the unveiling of Venezuela's longest flag - comes as he faces accusations of mishandling the economy. Two years since he took office, even former officials call the country "a laughing stock".

"It's as if we have the Midas touch in reverse," said former finance and planning minister Jorge Giordani earlier this year. The country, which sits on the largest oil reserves in the world, suffers from "fiscal nymphomania".

Venezuela's economy is forecast to shrink by 7 per cent this year. Inflation is expected to top 150 per cent, fuelled by printing money to fund a fiscal deficit estimated at 20 per cent of gross domestic product.

Asdrubal Oliveros, head economist at local consultancy Ecoanalitica, estimates the drop in government revenues caused by the collapse in oil prices squeezed imports by 22 per cent last year and will slice another 31 per cent off imports this year, crushing supplies of essential goods. "It is going to be a very tough year," said Mr Oliveros. "The crisis is hitting all social classes."

At a grocery store in Petare, one of Latin America's biggest slums, the owner complained to the FT about scarce meat supplies while an argument erupted as a shopper grumbled about the price of cooking oil. "You can't charge me 1800 bolivars," he argued. "I paid 270 last month."

A large reason behind Venezuela's topsy-turvy economy is its system of parallel markets and multiple exchange rates.

The minimum wage, for example, is 5,620 bolivars a month - worth $892 at the main official exchange rate, or just $21 at black market rates. Government stores sell food at regulated prices, but shortages mean many consumers must turn to the black market.

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But not everyone plays the game successfully. At one state-run supermarket, a queue of shoppers snaked into the car park. One swore as he emerged empty-handed.

Analysts say Mr Maduro's inability to put in place more coherent economic policies is due to a corrupt inner circle dominated by the army, who assure the president social control in return for preferential access to goods and hard currency.

Two years ago Mr Giordani, chief economic adviser to the late Hugo Chavez, estimated that insider access to subsidised hard currency had cost the country more than $25bn, equivalent to almost 15 per cent of GDP.

A contraband trade in subsidised gasoline costs more than $2bn a year, economists estimate. "This regime does not favour the needy, but rather the powerful and corrupt," another former minister told the FT. "This government is a mafia cartel."

Military officials make up a quarter of the cabinet, including the finance, food and justice ministries.

However, midterm parliamentary elections this year may hold Mr Maduro's feet to the fire. Polls suggest the opposition will secure a majority, which could lead to a referendum and Mr Maduro's replacement.

"No system in the world, capitalist or socialist, could cope with such an oil price drop," said Nicmer Evans of Socialist Tide, a leftist group critical of the government. Mr Maduro's "biggest challenge is what happens if people come down from the slums".

In 1989, the Caracazo price riots - which followed a collapse in oil prices and a neoliberal economic adjustment programme recommended by the International Monetary Fund - were bloodily put down by the government of President Carlos Andres Perez.

"With oil revenues so low, the only thing left [for the government] to do is to repress," said Mr Oliveros.

On Monday night, Mr Maduro warned oil prices were unlikely to rise soon. Thumping his lectern, the 52 year-old swore the government would continue its vaunted social programmes and blamed speculators for "constant economic war".

"Do you agree that I should radicalise?" he roared. "We're going to take a firm hand."

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