Following last week’s comments about protests in Venezuela,
I got an email from Christian Novak chiding me for not taking my analysis
farther and discussing whether the eventual collapse of the Maduro regime will
have a knock on effect on other Latin American countries, such as Argentina, Bolivia,
or Peru.
Guilty as charged.
President Christina Fernandez in Argentina is already on her
way out. Last October’s elections did not give her the mandate she needed to
change the constitution and run for a third term. Fernandez never militarized
the economy the way Chavez did, whilst all her mistakes are homegrown; there
are no foreign advisors, Cuban or otherwise. Neither the IMF approved reforms
to the national inflation indices nor the settlement with Repsol over YPF would
not be possible without her approval, stated or otherwise.
Collapsing foreign exchange reserves seem to have done an
excellent job of concentrating Fernandez’s mind. Neither the IMF backed reforms
to the national inflation indices nor the settlement with Repsol over YPF would
not be possible without her approval, stated or otherwise, and she would only
do so if she had no other choices. Argentina’s lack of a developed Energy
industry to underwrite her excesses meant she was never able to push her
nationalism as far as Chavez did, despite all the rhetoric and joint issuance
of bonds.
Peruvians have been much harder on President Humala than
Venezuelans were on Chavez. Lacking Chavez’s charisma, his popularity slumped
as the economy slowed last year. Chavez was able to put many of his cronies
into positions of authority where they could seek rents unopposed, whilst
Humala’s attempts to do likewise were immediately met by street protests,
forcing him into a humiliating climb down.
Unlike in Venezuela, Bolivia’s Evo Morales has used the
commodities boom to accumulate Foreign Exchange reserves to insulate the
economy from the inevitable fall in prices, so reserves/ GDP are now amongst
the highest in the world. Whereas debt/ GDP is at record levels in Venezuela
(when you factor in the Chinese Oil loan and the Government’s unpaid bills), it
has fallen dramatically in Bolivia. Where he has nationalized an industry,
Morales has ensured that they continue to invest back into the business and
remain competitive.
None of these three countries are dependent on Venezuela in
any form, so a change in Government in Venezuela is not going to cause them any
hardship. Despite all their fraternal leftist rhetoric, what they have actually
done in practice is qualitatively different to what Venezuela has done. Any
future policy changes will be independent of any changes in Venezuela.
The one country where a material change in Venezuelan policy
will impact them is Cuba. The presence of so many Cuban “advisors” in the
country is being increasingly questioned, and is a source of tension. This
video posted to Youtube shows the arrival of another planeload of Cubans at
Caracas airport being told to “Get lost!”
Currently the island receives an unknown but significant amount of cheap oil. As Venezuela’s oil revenues shrink, it will be harder and harder to maintain these subsidies, and a less accommodative government in Caracas could be as disruptive to Havana as the fall of the Berlin wall.
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Over the weekend, some of Venezuela’s protestors tried to
link what they are doing to events in the Ukraine, but the differences are
probably greater that the similarities; the demonstrations in Ukraine appear to
be more broadly based than in Venezuela, with a more focused leadership. The
protestors in Venezuela are still seen as being predominantly Middle-Class,
without clearly defined goals. Having said that, the numbers attending the anti-Maduro marches are impressive - see the picture at the top.
Finally, Colgate Palmolive announced that they would take a
one-off loss of $180-200M on Venezuela’s latest devaluation. I include this
little tidbit not because it refers to Venezuela, but to emphasize the
increasing role Emerging Markets play in the profitability of global
multinationals.
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