Hugo's Dream Becoming a Nightmare

Looks like Hugo Chavez's communist dream is turning into an economic nightmare.

The radical economic policy agenda of the government, which is centred on expanding the state-led development model, will exacerbate deficiencies in the business environment, and Venezuela will remain a challenging place in which to invest. Investment in most sectors is unlikely to thrive against a background of distortionary macroeconomic policy (characterised by price and exchange controls), threats to property and contract rights, unpredictable state intervention and a growing bureaucratic burden. Even in the dominant energy sector, foreign investment will be below potential. The burden of oil investment will fall increasingly on the public sector, but here there are questions over efficiency and technical capacity.

That is all The Economist's fancy way of saying that when a government starts confiscating private property, investment capital scrams because investors move their wealth elsewhere. Inevitably, productivity plummets and then the government has to just print money to make ends meet, resulting in high inflation and economic implosion. Notice in the chart in the link the forecast of 28.2% inflation for 2008 and 29.5% for 2009 with double digits for years to come, and prime rates in the same range.

The implosion of Venezuela's economy due to Chavez's insane policies is not in doubt. It's just a matter of when.