Tag Archives: United States

Aug
25
2011
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Chávez Over an Economic Barrel

DSC 0754 150x150 Chávez Over an Economic Barrel

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff. He is a consultant with Vision Americas in Washington, DC.

Each time Hugo Chávez travels to Cuba for chemotherapy, he leaves behind an economy in worse shape than he is. As the Financial Times put it recently, “Venezuela’s economy suffers from all kinds of unique problems, which the government does seem to want to resolve” – only every time it tries, it winds up making things worse.

That’s because reality has a way of punishing populist economic policies.

Yet, despite the widespread damage to the Venezuelan economy caused by nationalizations, strict currency and price controls, and lack of property rights and judicial guarantees, Chávez continues to forge ahead, believing that Venezuela’s oil patrimony means he’s exempt from the laws of economics or accepted standards of governing.

Consider his latest scheme:  transferring billions of dollars in Venezuelan cash reserves from U.S. and European banks to “friendlier” countries such as Russia and China, and repatriating billions more in gold from abroad.

Regime officials say it is to protect Venezuela from “disturbances” in the international markets, but experts say there is no economic justification for such a risky move; that it is political.  Meaning that one can be sure Chávez is acting in his own interest and not that of the Venezuelan people.

Whatever his motivations, the immediate results are that investor confidence in Venezuela will likely erode further and the cost of borrowing (which Chávez is currently doing at a record pace) will increase.  (Due to Chávez’s anti-free market policies, Venezuela already has the highest borrowing costs among major emerging-market economies, according to Bloomberg.)

Indeed, Wall Street was quick to react: Standard & Poor’s cut Venezuela’s credit rating one level to B+, four steps into junk status, citing growing “uncertainty” over Chávez’s “changing and arbitrary laws, price and exchange controls, and other distorting and unpredictable economic measures [that] have undermined private-sector investment and hurt productivity, weakening Venezuela’s domestic economy.”

All of this does not bode well for the Venezuelan people as the country heads into an election year.  Despite his precarious health situation, Chávez insists he will run for re-election, which means he will need even more cash for lavish social projects and mitigating the myriad domestic crises – shortages of electricity, food, and housing – he has created.  Something has to give.

To date, Chávez’s gambit has been that oil revenues would continue to outpace the exorbitant spending that fuels his popularity; but that gambit appears to be running its course.  PDVSA’s Golden Goose is on the verge of collapse from exhaustion. Declining oil production and dropping prices means less cash, more borrowing on unfavorable terms, and more mortgaging of Venezuela’s future.

The Venezuelan opposition has plenty of opportunities to hold Chávez to account after 12 years in power: horrendous crime statistics, rampant inflation, and the aforementioned scarcities.  But they should add his reckless decision-making in international economic matters.  Not only is he saddling the next government with prohibitive debt and a crippled oil company, but do Venezuelans really want China and Russia, hardly known for their transparency and legal guarantees, to be the custodians of their hard currency wealth?

The United States cannot be an idle bystander in this process.  What happens in Venezuela directly impacts U.S. interests.  While the country is a nearby source of oil (some 10% of our imports), under Chávez it has played an exceedingly unhelpful regional role in terms of its counter-narcotics and counter-terrorism polices.  Besides massive purchases of Russian arms that have alarmed his neighbors, Chávez has also provided a platform for Iran to establish a presence in Latin America, as it attempts to secure strategic resources in the face of United Nations sanctions.

The Obama administration should be concerned less about Chávez’s reaction to what we say and more about standing solidly behind principles of a free, fair, and peaceful democratic process.  Hugo Chávez is fully capable of attempting to bring down the temple around him if he sees his political fortunes rapidly going south. The goal of the U.S. policy should be to help Venezuelans prevent that from happening, rather than just arriving in time to help them pick up the pieces.

 
Aug
19
2011
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In Case You Missed It… Articles Roundup Week of 8/19/11

In this week’s roundup…  Amidst harsh criticism, Venezuelan President Hugo Chávez plans to move Venezuela’s cash reserves from the United States and the United Kingdom to nations led by political allies; at the same time, Mr. Chávez is preparing to nationalize the gold industry; price controls prove to be an expensive mistake; the opposition faces government threats and harassment; and finally exiled opposition leader Manuel Rosales gives way to Pablo Pérez as the UNT presidential candidate in 2012.

Venezuela Plans to Move Reserve Funds, The Wall Street Journal

Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

Critics raise alarm over Venezuela reserves plan, Reuters

A reported plan to shift Venezuela’s international reserves from Western nations to political allies could hurt market confidence in President Hugo Chavez’s ability to repay debt and has prompted a flurry of speculation about his motives.

Venezuela to Nationalize Gold Industry, The Wall Street Journal

Venezuelan President Hugo Chávez said Wednesday he plans to nationalize the country’s gold industry in bid to take over production and ramp up international reserves, a day after plans to bring home billions in cash and bullion held overseas were divulged.

Medieval Policies: Another step forward from Hugo Chávez, The Economist

EIGHT years after Hugo Chávez’s socialist government imposed strict price controls on basic goods, Venezuela has the world’s highest inflation rate to show for the effort. By mid-2011, food prices in Caracas, the capital, were almost nine times higher than when the controls were introduced, according to the Central Bank; wages had risen by 40% less. Last year consumer prices increased by 27%—compared with an average in Latin America of 6%—and they are still rising. With a presidential election due next year, something had to be done. So President Chávez has used legislative powers granted him by the last parliament to decree a Fair Prices and Costs Law, which in effect makes inflation illegal.

Phone taps target Chavez opponents in Venezuela, The Associated Press

President Hugo Chavez’s political rivals are on notice that anything they say over the phone might be not only recorded by eavesdroppers but also played and flaunted on national television.

Former Rival Of Venezuela’s Chavez Bows Out Of Presidential Race, NASDAQ via Dow Jones Newswires

A major rival of Venezuelan President Hugo Chavez bowed out of the 2012 presidential race Wednesday, and threw his support behind another, formidable opposition contender.

 
Aug
17
2011
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ICYMI: Venezuela Plans to Move Reserve Funds

Venezuela Plans to Move Reserve Funds

The Wall Street Journal - August 17, 2011

By José de Córdoba and Ezequiel Minaya

CARACAS – Venezuela plans to transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults, according to documents reviewed Tuesday by The Wall Street Journal.

The planned moves would include transferring $6.3 billion in cash reserves, most of which Venezuela now keeps in banks such as the Bank for International Settlements in Basel, Switzerland, and Barclays Bank in London to unnamed Russian, Chinese and Brazilian banks, one document said.

Miraflores Press/Zuma Press
Hugo Chávez returned to Venezuela after completing another phase of his treatment for cancer in Cuba.

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.

Venezuelan officials were tight-lipped. Representatives of the ministry of finance and the central bank said there was no official comment, and no one was authorized to address the issue.

Lately, senior Venezuelan officials have criticized Venezuela’s dependence on the dollar. Last Saturday, Venezuelan Foreign Minister Nicolas Maduro said the world’s financial system, based on the dollar, “had entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation,” he said.

The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank.

A spokesman for the Bank for International Settlements where Venezuela keeps $3.7 billion of its cash reserves, and 11.2 tons of gold, Venezuela svalues at $544 million, according to the document, also declined to comment.

Analysts said the planned move made little economic or financial sense, since Venezuela would be taking its money out of secure banks in safe countries and putting it in countries that are not as safe and perhaps in currencies such as the Chinese yuan or the Russian ruble, which are not reserve currencies. “It’s a big risk,” said José Guerra, a former official at Venezuela’s central bank. Mr. Guerra said he also had heard about the documents whose authenticity was confirmed to him by Central Bank officials.

Mr. Guerra said one possible reason for the planned moves could be that Venezuela is afraid it could be compelled to pay billions of dollars in compensations to foreign companies that have gone to court to recover damages for companies Venezuelan President Hugo Chávez has nationalized. Another reason could be that China may have asked for collateral for billions of dollars it has loaned Venezuela, Mr. Guerra said.

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