Raul Gallegos : A post-Chavez Venezuela
is no investment bonanza
The health of Hugo Chavez has piqued the market's interest. Long stretches of silence from the cancer-stricken Venezuelan president have brought a certain morbid optimism to investors, who have sent the country's debt to highs not seen in years. But any new regime will still have to wrestle with the legacy of backwards Chavez policy. Unwinding years of economic mismanagement won't be easy.
In anticipation of Chavez's possibly bowing out of upcoming October elections, Venezuela's sovereign debt has surged by 23 percent this year, far outpacing the JPMorgan EMBI global index of emerging bonds, which is up just 6 percent. And while the country's high level of debt issuance made its credit riskier than Argentina's earlier in the year, Venezuela's five-year credit-default swaps have tightened considerably and now trade some 200 basis points lower than that of its fellow South American state.
What's more, the traditional Chavez discount – created by his financial policies, lack of transparency and high deficits even with soaring oil prices – is gone. Venezuela's 2022 bonds now sell at a rather rich premium.
But investors are getting ahead of themselves. For starters, Chavez still has an edge. Even while fighting the cancer that has curbed his normally frequent public appearances to sporadic tweets, Chavez is as much as 13 percentage points ahead of opposition rival Henrique Capriles Radonski. And though polls indicate Capriles would be a front-runner if Chavez were to throw his support to Foreign Minister Nicolas Maduro, his lead would be narrow.
A Chavez defeat also wouldn't necessarily clear an easy path. Chavistas would still control the Congress until 2015. This would be sufficient power to tie up the plans of any new president, including issuing new debt or refinancing older paper, making Venezuela's financial policies unpredictable.
Opposition leaders have given investors fair warning. They concede that unwinding Chavez's age-old capital controls would take time. The state's massive spending on social programs also probably wouldn't go away any time soon. And just how far a new government could cut social programs without a backlash isn't clear. A post-Chavez Venezuela is almost certainly good for investors, but it's no immediate bonanza either.
Follow us and post your comments: in Twitter Facebook
Raul Gallegos is the Latin America financial columnist for Reuters Breakingviews. Raul has more than a decade of experience covering the region's business, finance and economics. His work has appeared in the Wall Street Journal, the LA Times and Institutional Investor. From 2004 through 2009, Raul was the Venezuela-based oil correspondent for Dow Jones Newswires, and a member of the OPEC coverage team in Vienna. He holds a bachelor's degree in economics from the University of California at Berkeley and a master's degree in International Affairs from Columbia University. He was a 2010 Knight-Bagehot Fellow at the Columbia Business School (firstname.lastname@example.org) . Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by Reuters Breaking Views Blog , on May 8, 2012 . Petroleumworld reprint this article in the interest of our readers.
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld News 05/21/2011
Follow us in Twitter
And post your comments in our Facebook site
Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!
We invite all our readers to share with us their views and
comments about this article, write to email@example.com
Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors
Send this story to a friend Any question or suggestions,
please write to: firstname.lastname@example.orgBest Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x600 pixels