Looks like Hugh is re-committing the mistakes of other Latin American countries in the 1970s. And of Zimbabwe of today.
From the New York Times
CARACAS, Venezuela, Feb. 16 — Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls.
Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent....
For now, Venezuela remains far from any nightmarish economic meltdown. The country, which has the largest conventional oil reserves outside the Middle East, is still enjoying a revenue windfall from historically high oil prices, resulting in a surge in consumer spending and lavish government financing for an array of social welfare and infrastructure programs. Dollar reserves at the central bank total more than $35 billion.
The economy grew by more than 10 percent last year, helping Mr. Chávez glide to a re-election victory in December with 63 percent of the vote. Yet economists who have worked with Mr. Chávez’s government say that soaring public spending is overheating Venezuela’s economy, generating imbalances in the distribution of products from sugar to basic construction materials like wallboard.
Public spending grew last year by more than 50 percent and has more than doubled since the start of 2004, as Mr. Chávez has channeled oil revenues into social programs and projects like bridges, highways, trains, subways, museums and, in a departure for a country where baseball reigns supreme, soccer stadiums.
In an indicator of concern with Mr. Chávez’s economic policies, which included nationalizing companies in the telephone and electricity industries, foreign direct investment was negative in the first nine months of 2006. The last year Venezuela had a net investment outflow was in 1986.
Shortages of basic foods have been sporadic since the government strengthened price controls in 2003 after a debilitating strike by oil workers. But in recent weeks, the scarcity of items like meat and chicken has led to a panicked reaction by federal authorities as they try to understand how such shortages could develop in a seemingly flourishing economy. ...
Fears that more private companies could be nationalized have put further pressure on the currency as rich Venezuelans try to take money out of the country. Concern over capital flight has made the government jittery, with vague threats issued to newspapers that publish unofficial currency rates (officially the bolívar is quoted at about 2,150 to the dollar). ...
But recent expropriations of farms and ranches, part of Mr. Chávez’s effort to empower state-financed cooperatives, have also weighed on domestic food production as the new managers retool operations. So has the flood of petrodollars into the economy, easing food imports and making some domestic producers uncompetitive, an affliction common to oil economies.
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