Published by Minyanville
US Secretary of State Hillary Clinton last week slammed Venezuela’s economy, describing it as a “notable exception” to the “era of sustainable democracy and economic growth” spreading across Latin America.
“Brazil is booming,” Clinton told the Senate Appropriations Committee in Washington. “Chile similarly has good leadership and made good investments,” she added, before touting successes for Colombia and other Latin American nations.
The left-wing governments of Venezuela, Cuba and Nicaragua were noted as exceptions, just weeks before President Barack Obama visits Brazil, Chile and El Salvador in a tour of South America.
President Hugo Chávez will have brushed the criticism aside, if not retaliated in much harsher language. He finally spoke out on Libya’s current crisis after an unusual silence, inviting leaders of friendly nations to mediate between Colonel Gadaffi and the rebels attempting to overthrow him after over four decades in power.
The crisis in Libya will, in fact, be the first good news for Venezuela’s economy in a long time. With crude oil prices hitting $107, the value of Venezuela’s exports—95% of which are oil—will rise. OPEC members including Kuwait, the United Arab Emirates and Nigeria are upping production by 300,000 barrels a day in the coming weeks in a bid to maintain price stability. News of the increased output placated traders, allowing oil prices to subside earlier this week.
If the high prices last, Chávez will have furthered his advantage in the long election battle that awaits him, set to culminate at the end of 2012. Extra funds would allow money to be channeled from state-owned oil company Petróleos de Venezuela (PDVSA) into battling the inflation that is gripping Venezuelans.
Food prices in Venezuela have jumped 37.2% in the past year— the highest in Latin America—ahead of general inflation of 28.7% for the same period. Inflation there is amongst the highest in the world and has featured on many of the country’s front pages in recent weeks.
February saw the consumer price index rise 1.7% according to the country’s central bank, down from the January figure of 2.7%. Prices rose rapidly in January owing to heavy December rains that led to a shortage of vegetables, exacerbating already high global food prices.
Half of the products in the basket that determines the country’s consumer price index are subject to price controls, limiting companies' abilities to raise prices. This deep slash into profit margins is forcing many companies to look elsewhere.
Chief Executive of surgical equipment supplier Bausch & Lomb, Brent Saunders, echoed Hillary Clinton’s comments. "We've made a very special emphasis to grow in Latin America but when you look at the dynamism of Latin America, it's hard to put Venezuela at the top of the priority list, given massive inflation, weakened intellectual-property rights, price controls and currency issues."
Chávez’s government expropriations are also being blamed for Venezuela’s financial-pariah status within the region. Large companies operating in the country for decades are being seized without warning, such as Owens-Illionois, a glassmaker, and Helmerich & Payne, a manufacturer of drilling rigs.
Two years ago, Cheavez threatened to expropriate giant Japananese auto-maker Toyota when he said they weren't producing enough vehicles for rural markets. The company has more than 2,000 staff in the country and has had a plant there for over 50 years.
Relations between Colombia and Venezuela may finally be warming. President Juan Manuel Santos of Colombia now refers to his Venezuelan counterpart as his “new best friend” in an interview in the New York Times. Just last year, Santos accused Chávez of plotting to assassinate him.
The Colombian president claims to be “pro-American”, and is looking to Asia as well as repairing the relationship with its more left-wing neighbor.
The news will please investors with an eye on Latin America, perhaps paving the way for Venezuela to eventually be allowed onto Hillary Clinton’s list of favorable nations below the Rio Grande.