Chavez And The Diminishing Return - Part One

 

chavez-finalSince coming to power in 1998, Hugo Chavez of Venezuela has not only transformed the political landscape of his own country and influenced the populist movement of South America, but he has also dramatically impacted investment and its outlook. Chavez’s power base has made the prospect of investing (and even preserving) money in Venezuela a complicated affair, and unfortunately it is becoming an increasingly difficult riddle.

Chavez during the height of the boom in oil prices found himself in a politically powerful and cash-rich position, able to spend money for pet projects and military rather carelessly. However, because of the global downturn and retrenchment in oil prices, Venezuela finds itself with a sinking economy that is cash strained. The Bolivar is losing value and its bonds ratings are suffering internationally.

Chavez is widely known as a hawk within OPEC and has called for the oil cartel to try to keep prices as high as possible. While one cannot fault him for wanting his country to profit on the heels of oil’s strength, it does leave him open to criticism considering oil’s fall and his inability to expand Venezuela’s economic base. His one-dimensional approach to growing Venezuela’s wealth has left him at a distinct disadvantage.
The question that arises for the private or institutional investor considering a placement of capital within Venezuela is a dynamic one. Because of the political situation, it would be foolhardy to invest without promises by the leader himself, Chavez, that capital would be welcomed and secure. Unfortunately his track record does not support that type of consideration, taking into perspective the fact that he has now begun to extort money from corporations by threatening them, in some cases going as far as taking over facilities of corporations and nationalizing them or penalizing them with a probation process consisting of different time frames per the government’s whim.
Chavez has not only made it hard to invest in Venezuela; he has also made it difficult to get money out of Venezuela, putting limits on amounts of money that can be carried out of the country personally and sent by wire transfer. These policies have left the people who have earned good incomes in Venezuela to formulate alternative methods to safeguard their wealth, which has not been easy considering the precipitous fall in the value of the Bolivar.




Chief Fundamental & Commodities Expert Robert Petrucci has worked in Financial & Commodity businesses for over fifteen years, including Physicals, Futures, and Options trading in Chicago and o.....




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