Wednesday, 18 February 2009

One More About Venezuela. Our Call Was Wrong. But We Insist on our Three-Year Outlook Forecasts

He won. We said his victory was the victory of evil love. Evil love? That doesn't probably exists elsewhere, it does only in Venezuela: we love you to intimidate your countryman, we love you to embark the homeland in a project that is clearly aggressive and confrontational, we love you to kick out those who don't like us. Bad, selfish love. Anyways, we will talk about good love in another opportunity.

MM expected a small victory of the NO in the referendum. Our call was wrong. Instead, Chávez's YES won by an ample margin of 10 percentage points. His was a solid victory, obtained with persistence and intelligence. The opposition failed to promote its own cause. And students movements were probably dealt a big defeat, because they had seen so far by the Venezuelan voter as the only independent source of intelligent opposition to the government of the Lt. Colonel. Well, time will tell us better what happened that day.

Goldman Sachs Group Inc. economist Alberto Ramos, one of the most knowledgeable, responsible and sharp economists covering this troubled region, wrote a few lines about the result of the referendum in a report to clients this morning. One good soul, a soul full of love, forwarded his comments to MM. To that good soul, thanks. Says Ramos: ''In the campaign for the referendum the government mobilized the full force of its logistics and resources to push forward the constitutional change proposal, while the opposition was slow to mobilize against the government proposal.´´ We agree 100 percent with his assessment. ''Furthermore, this election also exposed the shortcomings of the opposition: a fractured field struggling to build a cohesive identity at the national level.´´ True, nothing but the truth. ''This victory solidifies President Chávez’s already-firm grip on power and all the key institutions in the country. It could also embolden the regime to deepen the distinctly interventionist and state-centric economic and political model.´´ Yes, right! Therefore, Goldman Sachs is giving us another, unfortunate though, gloomy view about the future of Venezuelan politics and economics: for them, and for us at MM, the most likely scenario is for the Chávez administration to keep gradually encroaching on private sector participation via further nationalisations and through the tightening of regulation, including price, exchange rate and tax controls.

Ramos adds: ''Finally, because the victory extends the political horizon of the regime beyond 2012 the government could feel more inclined to embrace needed but unpopular measures to deal with growing macro imbalances, and a slowing economy driven by lower oil prices and the weight of inefficient public policies.´´ This is important, given the fact that there is no consensus among analyst over the path that the Bitter Chocolate Bolivarian Revolution will follow. A devaluation has its side-effects on inflation but it would mainly do it for the regime by boosting fiscal revenues at a time of declining oil incomes. The economist continues his assessment: ''Sunday’s referendum results will not be a catalyst for fundamental economic, financial, and political change in the short-term and as such should not change the nature and inherent risk of the credit in the near and medium term.´´

We would like again to go beyond his conclusion and say that the victory paved the way for the Revolution to continue restrictions on the way business can operate, economic relations are conceived and especially, will deepen the regime's practice of favouring crones with subsidised dollars and easy access to credit at the expense of businesses seen as foes to the government. For the next three years, more political polarisation should be expected. And we insist -- in the event of further nationalisations, the government may be prone to reconsider payments for those actions.

1 comment:

  1. Yup, in 2008 and 2009, US-led western free market economics has shown everyone in Venezuela just how wrong Chávez has been all this time......