When Harry Belafonte sang about Matilda, who took the money and ran to Venezuela, it was a different time and place. Investors these days need to be wary of running to Venezuela with their investment money, since it might be tough to get it – and even themselves – out again. Hazards lurk in everything from currency to transport to nationalization.
President Hugo Chavez died last March, and in the lead-up to the first anniversary of his death, demonstrations against the government broke out and became increasingly violent. Spurred on by shortages in everything from housing to electricity to food and appliances, Venezuelans took to the streets to display their displeasure. With a death toll that currently stands in the mid-double digits, more unrest seems inevitable.
In an attempt to crack down on the protests, Chavez’s successor, Nicolas Maduro, has tightened the screws on private enterprise and public demonstrations while throwing sops to the public. Last November, he seized electronics stores and ordered price controls in an attempt to appease a restive populace; more recently he’s gone after his political opposition, although he’s also thrown them a bone or two, such as extra holidays to celebrate Carnival.
But his actions have only brought more public outcry, as well as demands from the opposition for everything from negotiation to resignation. And that’s not all. The dangerous political situation led Air Canada to suspend flights to the country in mid-March, citing security worries. Maduro has said Air Canada – and, for that matter, any company “that leaves the country will not return while we hold power.”
According to the International Air Transport Association, several other airlines had already reduced their Venezuelan operations and are considering severing them, because the country has kept a tight rein on currency – those airlines have claimed the country owes them $3.8 billion. Ticket sales to Venezuelans are required to be billed in Venezuelan bolivars, but when the airlines have requested the OK to repatriate the money, the government has not approved those requests. Many have not been paid in over a year, some in as long as two years.
IATA Chief Executive Tony Tyler had said 11 of the airlines flying to Venezuela have within the past year reduced service to the country between 15% and 78%. As a result, travelers are finding it hard to enter or leave the country. And among those who are successful, many say that outbound flights are often nearly empty.
While Venezuela has promised to make good on the airline ticket sales receipts, the exchange rate of 52 bolivars to the dollar in a new system put in place near the end of March has meant that outside airlines such as American, Lufthansa and Avianca would have to accept steep losses. When the airlines sold tickets in 2012 and 2013, the exchange rates were 4.3 bolivars to the dollar during the former and 6.3 for most of the latter.
That’s not all that’s troubling the country’s economy. Tire manufacturer Pirelli has said it expects steep price increases on its tires to compensate for currency woes, with prices going up by double-digit factors. Such hikes as companies attempt to keep up with the country’s money problems are what led to the seizure of the electronics stores last year.
If its people aren’t content, the country’s neighbors aren’t happy with Maduro, either. Not only do Venezuela’s public sector companies owe Brazil some $2.5 billion, Brazilian President Dilma Rousseff, while still nominally an ally, is disappointed with Maduro’s failure to meet with opposition leaders at home. Concerns that increasing political strife in Venezuela could put at risk Brazilian companies’ business interests there have led Brazil to back off its support for the Chavez successor.
Panama has also become a target for Maduro’s displeasure, after it had the temerity to request a meeting of the Organization of American States to discuss Venezuela’s increasingly violent political protests. Maduro took the opportunity at a commemorative service for Chavez to announce to other Latin American leaders that he had decided to sever “political and diplomatic ties with the current government of Panama and freeze all trade and economic relations from this moment on.” Panama’s official statement said that the country was “astonished” at Maduro’s action.
Maduro has lashed out not only at Panama but at the U.S. as well. He claims the two nations conspired to bring down his government. He also had some nasty things to say about OAS President Jose Miguel Insulza, basically telling him to butt out of Venezuela’s business.
While Venezuela was troubled under Chavez’s leadership, Maduro has made the country a place where only the most intrepid of investors should venture.