Dear Reader,
South America's most controversial and soon-to-be most autocratic leader have just managed to cling on to power, but for how much longer and at what cost?
Venezuela is a spectacularly beautiful country. I was fortunate to spend two weeks there in January. The trip left two big impressions; firstly, the extremely difficult climate companies work under, secondly, peoples' mistrust against politicians due to grave mismanagement of state resources for the last 50 years.
During my trip I had the benefit to visit a foreign owned factory. It is a manufacturing plant producing the most elementary of products, plastic bottles. When showed around the plant I was struck by the labour intensiveness of the production. The manager told me that they used many times the amount of workers necessary in any of the company's factories around the world. This had to do with that the mother company was not willing to invest in new machinery. The unwillingness to invest in Venezuela was shared by all foreign managers of companies I met. The companies they worked for had all arrived decades ago, in what was then a prosperous country with the biggest industrial capacity in South America. Companies made astronomical profits and the spirit then was cheerful and optimistic. Today it is all gone.
A developing country stands and falls with its leaders. Venezuela has now the biggest clown of a president of any country of the world. I am personally disgusted by his rhetoric. His mismanagement of state finances and plundering of state resources for personal objectives is mind-blowing. I learned for a source that only a third of Venezuela's oil output is sold at market prices (to the US). Circa 40% is sold to countries loyal to Chavez under a special development programme. These countries are charged market prices but will pay over a 30 year time-period (at 0% interest rates). The remaining 30% is sold in Venezuela. With the heavily subsidized petrol prices it only costs USD 0.5-1 to fill up your car.
Chavez voter base is based upon the 4 million people who has got improved living standards under his regime. They constitute circa 40% of the electorate. They are extremely loyal to him, hence Chavez habit of turning every election to an election about himself. The latest election on the 15th was about an amendment to the constitution allowing him to stay in power for unlimited time, which he won.
There are signs Chavez is under pressure. According to an article in the Economist three weeks ago Haiti, along with other countries in the Caribbean has stopped receiving subsidized oil from Venezuela. Furthermore Venezuela's oil revenues has plunged from USD92.3 million (2007) to USD 26.5 million (2008). Due to Chavez spending spree on social programs the budget deficit for 2009 is calculated to reach 9% of GDP. He as already snatched USD 12 million from the central bank to cover deficits, however since the reserves now stands at little above USD 26 million there is not much more to grab. Independent observers argues that if the oil price does not pick up in early 2010, Venezuela will go bankrupt.
Venezuelans are an unlucky bunch. They are blessed with one of the most beautiful countries on earth, but cursed to have corrupt politicians. Price controls, stringent labour laws and grave mismanagement of state finances has eroded foreign trust in Venezuela. If the country does not have the trust of foreigners no money will be invested and it will sink deeper. Crime has increased threefold since Chavez became president and it did not exactly start from a low level. Inflation is higher today then 1999 and FDI's has virtually stopped (with the exception of FDI from Iran, who hopes to buy Venezuela's uranium).
I do not wish Venezuela to go bankrupt. Sadly right now it seems as the only thing that can dispose Chavez from power is if he (read Venezuelan state) runs out of money. Lets hope it is sooner then later.
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