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It is mind boggling that Hugo Chavez, the authoritarian President of Venezuela is racing towards a mock socialist political system when the two largest socialist regimes in the world, China and Russia, have done the opposite. Even our long standing communist adversary (now trading partner) Vietnam entered the 21st Century on a capitalist influenced spring loaded economic boom.BusinessWeek reports in its latest edition that the Chavez government has been taking privately held supermarkets under government control:
Venezuelan President Hugo Chávez's response to the food shortages: find a scapegoat, in this case supermarket owners. On Jan. 17, the mercurial leader expropriated six Exito stores, controlled by France's Groupe Casino. A month later he seized Cada, another Casino chain, with 35 supermarkets and eight distribution centers.This comes after years of conflict and nationalization of the oil and raw material industries. These industries have been impacted by reduced production due to government ineptitude, bureaucracy and mismanagement that were compounded by falling oil prices last year.
I have written previously about this when I examined the implications of free trade and big profits for Exxon Mobile (XOM), and later, when I wondered whether Venezuela could become Zimbabwe? with Cemex (CX) as the example.
Given that the Venezuelan currency was recently devalued by 50% in January, and as it is remains under pressure, it would seem the government can only pretend to control food and commodity prices for the poor.
Two large U.S. (non-energy) companies affected by the currency devaluation and price controls include Avon Products (AVP) and Colgate-Palmolive (CL).
In January BMO analyst Connie Maneaty downgraded the whole personal and household products sector she covers, and Procter & Gamble Co (PG) in particular, to market perform from outperform. She already downgraded Avon, Colgate and Kimberly-Clark Corp (KMB) in early December over concerns about a potential devaluation. I'm not so sure the downgrades were warranted based on this one action but it is telling that analysts are concerned over the issue.
However, as reality sets in, with many daily staples in short supply, and while the government expands into areas it has no understanding, experience, or aptitude for, things will get worse. The people will not be thinking about stock prices but feeding their families.
If the currency is devalued again so severely, which seems inevitable given the current circumstances, no amount of government subsidies and camouflage will prevent the poor from suffering more, as imports dwindle, industries slow down further, and crime increases.
Since Chavez is oblivious to the obvious, while his approval rating drops and the debts continue to stack up -- is it possible we will see the return of military rule? After all, he has already decided he knows what's best for everyone as he tried to extend his time in office perpetually without limit.
Perhaps there are lessons in this for us as well as we consider increasing the size of government, albeit through a more democratic process.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not currently hold any positions in the stocks of the companies mentioned.
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Reader Comments (Page 1 of 1)
3-16-2010 @ 1:01PM
Kent said...
I made many trip to Venezuela on business and can recall how unstable the economy was even before Chavez, who now has exacerbated it. Even then, the government kept changing the rules and it was impossible to develop a business plan. Our company lost a good deal of money because of it. So I can sympathize with the foreign companies trying to make sense out of this chaos. I still have a bad taste in my mouth when I think of Venezuela. My thesis at B-School was Venezuela's nemesis of relying on a single-industry to support itself and needed to change and diversify its economy .. that was over 30 years ago.
3-16-2010 @ 2:21PM
Yon said...
Chavez is going to run Venezuela into rubble and the place will be another Soviet style incompetence heaven for at least a half century. That is OK, with the morons who run the USA, we don't need the competition. Cuba, Zimbabwe, Afghanistan and North Korea are perfect examples of Socialism run to its dimmest dogmatic excellence. Let us not forget that Socialism is just State Capitalism.
3-16-2010 @ 5:39PM
al coholic said...
I don't have any numbers but I think that Citgo may be the first company to truly suffer from an Internet sponsored boycott. I've seen some commercials supporting local owners of Citgo stations. I doubt these would have been necessary if the boycott wasn't affecting their sales.
3-16-2010 @ 6:32PM
william lindblad said...
Hugo is trying to mimic his idol - Fidel. Castro may be many things, but he is a wise politician and Hugo ain't. As you say, this type of socialism is based on Lenin and it is way out of practical style, not to mention economic. Venezuela had (and still does) a wealth disparity similar to Mexico and the solution to this problem will never lie in communist type rule.
Hugo should go talk to Daniel Ortega as he could tell him just how well it works. Hugo's support has been from the poor and it is only a matter of time until the dole type policies run out of funding and his followers start to feel the pangs of dissent. Probably a revolution in the cards, but I doubt that this will impact the world order to any degree. Considering that North Korea is in worse shape, change may be far into the future. It is just another case of a nut running a country and there seems to be an abundance these days. Mahmoud just decided that 911 and towers are a lie. Seems like he is not doing too well in the Iranian polls either.