Girish Gupta

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Chavez Bullish as Venezuela Shows Signs of Weakness
Aug. 15, 2011

Published by Minyanville

As he completes his second round of chemotherapy in Cuba, Venezuela’s maverick President Hugo Chávez is as bullish as ever, proudly telling state television last week, “It caught my attention the day before yesterday that the world media reported that all the stock markets in the world fell yesterday, except Venezuela’s.”

The trouble is that Venezuela’s stock market is not comparable to other countries’. It is “practically non-existent,” explains Benedict Mander in the Financial Times. Venezuela’s market is cut off from the globe by Chávez’s stringent economic controls. Venezuela’s biggest quoted companies, explains Mander, have withdrawn from the exchange after the president’s wave of nationalizations.

It is oil that is the driving force behind Venezuela’s economy and therefore the best indicator for it. While international oil prices are high -- thanks to events in the Middle East -- Venezuela’s barrel price fell by 8%, ending last week at $95.15.

Chávez claims to be keeping well through his treatment in Cuba. “I feel good. I'm receiving the corresponding dosage of chemotherapy in this battle that we're winning and will win,” he said. “I will be back in Venezuela soon. Everything must end well.”

Keen to be seen as in charge of the government, Chávez is ensuring that he remains in the public eye. As well as his comments on the state of the Venezuelan economy, Chávez has made repeated digs at the United States’ current crisis, joking about lending the US money as well as criticizing Washington’s social spending cuts.

Chávez does seem to be forgetting his country’s soaring inflation, which hit 27% in 2010. The figure for July was 2.7% up on June, with the previous 12 months seeing a rise of 25.1%. There are worries that the government’s legislation aiming to curb these figures will backfire by “boosting consumer prices, spurring corruption, stemming investment and causing more severe shortages of basic goods,” according to analysts interviewed by the Associated Press.

The pending Law for Fair Costs and Prices is designed to force prices to be set by the government, which will take production costs into account. These controls would add to already existing ones, widening the range of products they apply to.

Many business leaders are voicing their concern about the law, which is expected to come into force within weeks. However, Vice President Elias Jaua has countered, “Honest businessmen and merchants will continue to exist and continue their activities along with a population with increased purchasing power.”

Chávez continues to worry much of the world as he builds up Venezuela’s military. The country is finalizing agreements for two loans, worth $4 billion each, with Russia and China. Of this, $2 billion is earmarked for the purchase of military equipment.

“Look at what is happening in Libya and Syria,” Chávez said, referring to the United States’ apparent targeting of oil-rich countries for invasion. The president says he is worried that Venezuela may be next.

The Chinese loan is to be returned in oil, on top of many other credit lines from Beijing that are funding Chávez’s plethora of social programs in preparation for the 2012 elections. The China Development Bank lent Venezuela $20 billion in 2010, which is also being paid back in oil.

Oil output in June was at 2.77 million barrels per day, according to figures from Venezuela’s oil ministry, down from 2.79 million the previous month. Exports were also down to 2.41 million barrels per day in June from 2.48 million the previous month. As always, the news is uncertain, as the government in Venezuela is known for inflating its figures.

Gustavo Coronel is a former head of state oil company Petróleos de Venezuela and a fierce critic of the current regime. In an opinion piece for the Latin American Herald Tribune this week, Coronel wrote that the oil company is “on a slow boat to China,” criticizing its rapid accumulation of debt. The company, he says, is desperate for cash in order to develop its Orinoco region.

The tense relationship between Venezuela and Colombia appears to be somewhat on track after the statement earlier this month from a top official in the Colombian government suggesting left-wing rebels were still present in Venezuelan territory. Colombian officials have said that Venezuelan debts to Colombian airline and export firms are being paid back, with $828 million returned during the past year.




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© Girish Gupta