Chavez's nationalizations hurt the budget and reduce the venezuelan industry's productivity

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Since Chavez was reelected in 2006, he began a phase of nationalizations that included cement companies, utilities, communications, banks, shopping centers, farms, oil exploitations -Exxon Mobill/ ConocoPhillips cases- and entertainment corporations, as Avila Magica.

To this we must add the militarization of some private food companies -like Empresas Polar- and the seizure of a rice plant owned by Cargill Inc., among others. However, the government has lost sight that all these companies will be a burden on the national budget in a time when it has been so beaten by the sharp drop in oil prices.

We say this because for every nationalized company, the government must pay compensation to the respective owners. Besides, the State is obliged to spend large sums of money periodically to keep them, and as most of these communized organizations will operate with losses -as often happens with public companies- the government must get money from the national budget every year to subsidize them.

For a better assessment, we must consider that last year the Venezuelan fiscal deficit was around 1% of GDP, but this year, due to falling international oil prices and Chavez's mismanagement of the whole economy, the deficit is expected to reach 5% of GDP.

We therefore have doubts about the government's financial capacity to keep these expropriated businesses running with the same efficiency they had under private management. Also, we think it's a bad idea to nationalize private companies when the public budget is in deficit, because these expenditures will erode the Venezuelan fiscal balance even more.

Click on the image to enlarge it

Related articles:

- The Hispanic vision of the US financial crisis

- Correa's energy policy is causing havoc in Ecuador

- Questions after 50 years of Castrist revolution in Cuba