Expropriations and fines likely for destabilized Venezuela

Due to the current political crisis, necessary economic changes will be postponed for an increasingly unstable Venezuela, a big exporter of oil to the US.

As the Venezuelan nation keeps a vigil for its ailing leader, Hugo Chavez, another crisis appears to be brewing in their oil-rich South American country. According to a report released by Exclusive Analysis (a division of the US-based IHS), Venezuela's economy, like Chavez himself, may soon be on life support. The report warned, “A large economic crisis is looming in Venezuela as all major economic decisions, including a much needed currency devaluation, are likely to be postponed until a new government is in place.”

“As long as the transition is delayed and economic policy paralysis continues, we expect currency and non-payment risks to increase substantially. Foreign firms are likely to struggle to obtain foreign currency under the exchange controls” said Carlos Cardenas, Deputy Head of Latin America Forecasting for the analysis firm.

Continuing along those lines, “Venezuela’s currency is currently trading against the dollar at a rate 296% higher than the official rate. On 7 January it emerged that the fiscal deficit had reached between 15-17% of GDP in 2012, compared to the 11.6% of GDP registered in 2011. Likewise, as of 27 December 2012, Venezuela had international reserves of $26.16 billion, but only $3 billion of this was in liquid assets. The lack of available cash has translated into less allocation of dollars from the Foreign Exchange Administrator CADIVI and the Central Bank SITME system,” said Cardenas.

Expropriations and fines likely
 
“To reassert his authority, Vice President Maduro is expected to adopt an aggressive stance against the opposition and economic groups perceived as 'enemies of the poor'. The growing political instability, together with a marked worsening of the macroeconomic situation increases the risk that Maduro will depict the private sector as the main source of the country's economic ills,” said Cardenas.  “This raises the risk of nationalisation for food companies and large retailers significantly,” he continued.


Spero News editor Martin Barillas is a former US diplomat, who also worked as a democracy advocate and election observer in Latin America. He is also a freelance translator.

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