Will Venezuelan Supply Risk Spread?

Hurricane Hugo is at it again. Spend Matters' least favorite dictator is again attempting to increase his presidential powers at the expense of democracy and the free trade of information and goods in his country. A recent article in The Economist did a good job summarizing Chavez's latest referendum to increase his absolute control over the country, noting that "Many of the changes expand presidential power and weaken the remaining institutional checks on it ... The reform also allows the president to dispose of the country's international reserves as he sees fit, and to declare any part of the country a 'federal territory,' ruled directly from the presidential palace. Another change will allow the president to declare an indefinite state of emergency and suspend the right to information and to elements of due process."

Perhaps most alarming from a supply risk perspective is the concept of a "federal territory." What happens, for example, if one of your suppliers happens to be part of a nationalized land or industry? Or what will you do if Chavez decides to reallocate exports to his cronies in Iran or North Korea? The answer is those trading with Venezuelan companies will be left holding an empty bag -- filled only with the broken promises of a regime which cares only about preserving its own interests. Scary indeed. But it gets worse.

One anecdote that I heard recently supports the notion that Chavez is moving down the path of Hitler, who also called himself a socialist. This one came from a former colleague who was speaking with Israeli acquaintances who had been turned away at Venezuelan Passport and Immigration Control. The rumor is that Chavez is trying to appease his friends in Iran by thwarting the entrance of Israelis, even for business reasons. Chavez's anti-Semitic beliefs are something I'm sure we'll hear more about in the future. But in the meantime, ask yourself: Is this even a country that both ethically and rationally we can afford to do business with? Let's hope our next President is willing to make hard decisions that could put Venezuela back on track -- even if they result in temporary increases in oil prices along the way.

Jason Busch

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