It an old trick played by all dictators - demonize the foreigner. Today, Chavez - the cracker from Caracas - effectively stole a large chunk of the country's oil sector, under the pretext of protecting Venezuela's national assets.
U.S. companies ConocoPhillips, Chevron, Exxon Mobil, Britain's BP, Norway's Statoil and France's Total woke up today to find that their assets had been expropriated. After years of careful private sector development of the oil industry, which benefited both Venezuela and investors alike, Chavez comes along with that well-worn old song about "Homeland, Socialism or Death." What a sad choice to put before the nation. Would not "protection of property rights, democracy, and peace" be a better maxim?
With the benefit of high oil prices, Chavez can afford to offend foreign investors. However, once investors are expropriated, it is hard to convince them to return. Venezuela is a one industry country. It has a long and miserable history of boom following bust as oil prices rise and fall. Without foreign investment, the country's dependence on oil will increase. In the long run, Venezuela's development is jeopardized for the sake of crude quasi-racist anti-Americanism.
Foreign investors brought development, international best practice and technology transfer to Venezuela. Certainly, Venezuela has a sorry record of neglecting the poor. However, that was the responsibility of successive Venezuelan governments, who found it convenient to export responsibility for their failure overseas. Of course, it is always easier to blame Uncle Sam rather than undertake sustainable political and economic reform.
Venezuela's state oil company PDVSA has a well-earned reputation for corruption and mismanagement. Now, the PDVSA's management has even more assets to mismanage. Give PDVSA a little time and it is certain to screw things up. As the current management pulls out, these companies will run into production and safety problems.
Chavez now intends to nationalize the utilities and telecommunications. In the fullness of time, he will propose economic centralization and 5 year plans. Once oil prices fall, financial difficulties will follow. Venezuelans will see Chavez for what he is - a political fraud. One day, he will be racing to the airport, fleeing into exile. It is what usually happens to South American dictators.
Here is an easy economic forecast with a high probability of realisation; Venezuela is heading for a calamatious fiscal crisis. It is going to happen the moment that oil prices start to decline. Last year, el jefe and dictator for life – Hugo Chavez – increased public sector expenditure by a staggering 48 percent. Despite the fact that oil prices are at an all time time, oil-producing Venezuela is running fiscal deficit.
The country's stretched finances should come as no surprise. Chavez spared no effort to win another six-year term in office. His generous social programs helped grease the political machine that handed him the presidentcy chair once more. However, the guy is addicted to public expenditure. His spending continues to rise this year even in the absence of elections. Buying elections can be expensive, and it has become a habit. He carries on with it, even after he has effectively abolished parliament and now rules by decree.
The quasi-communist leader who often rails against the "evils of capitalism" spent a record amount and left a 2.28 trillion bolivar ($1.06 billion) gap in the country's finances even in the face of record oil gains. Soon, he will find out that there is an even greater evil that capitalism; it is called fiscal reality.
The arithmetic of the Venezuelan budget is simple enough. Over 53 percent of revenues come from oil. The price of oil is currently around $55 a barrel. So long as it stays there, he will be OK. If it drops off, he starts to slip into trouble. Nevertheless, the economy is starting to show the strains arising from his extravangence. He has also propelled inflation to 17 percent, making it the highest in Latin America. At the current pace, many expect rising prices to top 20 percent this year.
As we know, inflation always hurts the poor. So what he gives in entitlement programs, he takes back with inflation. Viva la revolution!
President Hugo Chávez is a little concerned that Londoners might have difficulty paying for public transport. This week his government signed an agreement to subsidise the fuel bill for London’s buses. Venezuela will transfer up to $32m a year to fund bus journeys for the cities' poor.
Ken Livingstone, London's mayor and well known looney left wing socialist, said the 20 per cent discount would fund half-price rates on buses or trams for 250,000 Londoners who receive welfare payments.
In return, London will send over its transport chief, Peter Hendy, to set up an office in Caracas, where British officials will impart to the Venezuelan capital London’s expertise in traffic management and urban planning. It is not clear exactly what Caracus can learn from London when it comes to transport. London has one of the most expensive and congested transportation systems in the world.
This deal was never about serving the interests of the citizens of these two cities. Rather, it is about promoting the the public relations interests of Chavez. The London mayor also agreed to act as the UK mouthpiece for the Venezuelan dictator. The mayor of London’s office had pledged to “actively and efficiently promote Venezuela’s image in the UK”.
In effect, London, which is the wealthiest region in Europe, is now receiving foreign assistance from a developing nation.
Hey! You've won a ride back to the top
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