Death and Rebirth in Venezuela
While it’s unseemly to publicly cheer the death of anyone, let alone a world leader, the United States is finding it difficult to mourn the passing of Venezuelan President Hugo Chavez.
One of the first populist leaders to come to power in South America in the 21st century, Chavez’s policy of nationalizing oil wealth proved hugely successful with the Venezuelan masses and, coupled with suspected electoral shenanigans as well as largesse for the poor, kept him in power for nearly 14 years.
But it also earned him the enmity of liberal democracies and business interests around the world, particularly when ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) found themselves divested of their Venezuelan assets in 2007.
That was a bitter blow for those two oil giants. The US Geological Survey estimated that the Orinoco Belt, a geologic formation stretching across northern Venezuela and into its territorial waters, could contain well over 900 billion barrels of crude, which would make it one of the largest oil fields in the world.
If that weren’t enough, Chavez exhibited the predictable tendency to blame many of his country’s ills on the shadowy interference of “US imperialism,” a kneejerk habit that Chavez and his coterie couldn’t break, even at his death. The Venezuelan government now alleges that US agents infected Chavez with the cancer that ultimately caused his death at the age of 58.
While his passing is certainly a relief for America, Chavez’s death doesn’t necessarily mean that anything resembling a liberal democracy will rise from his ashes. In fact, Chavez rose to power precisely because his predecessor attempted to liberalize the country’s economy.
In 1989, then President Carlos Andres Perez assumed office amid a crippling economic crisis in Venezuela, forcing him to accept a USD4.5 billion loan from the International Monetary Fund. Along with the money came a set of conditions known as the “Washington Consensus” which required him to cut budget deficits, eliminate subsidies, liberalize both interest rates and trade and privatize most state enterprises.
Because of those conditions, subsidies on fuel, food and a number of other goods aimed at providing relief for the country’s rural poor came to a sudden stop, sparking protests across Venezuela with the capital of Caracas serving as the focal point for discontent.
Against that backdrop, Chavez attempted his first rise to power, leading a failed coup against Perez in 1992. But given Chavez’s popularity with masses, he was treated with surprising leniency and even appeared on Venezuelan television to call for an end to hostilities, famously quipping “… for now.”
After less than two years in prison, Chavez emerged a hugely popular national figure and spent the next five years solidifying support for his socialist movement, carrying him to electoral victory and political legitimacy in 1999.
A major driver of his popularity was his promise to restore most of the subsidies eliminated as part of the Washington Consensus, a campaign pledge he eventually met.
The Mantle of Bolivar
While a new generation of voters has come of age in the intervening years, most of the electorate still remembers their period of hardship in the late 1990s. And thanks to the tight control Chavez maintained over most aspects of the Venezuelan state and media, young voters have been thoroughly indoctrinated in his revolutionary, anti-Western “Bolivarian” ideology, named after Simon Bolivar, the revered 19th century general who secured independence from Spain for much of Latin America, including Venezuela.
As a result, Vice President Nicolas Maduro, who also happens to be Chavez’s anointed successor, is widely expected to carry elections that should be called sometime next month. Chavez’s blessing will be a real advantage in those elections and Maduro is also expected to receive the support of China and Cuba, both of which have substantial political and economic interests in the country.
Fidel Castro has treated Chavez as a fellow traveler and believed he would carry the socialist banner in Latin America well into the 21st century. Accordingly, Castro’s government provided him both material and political support, as well as heavily subsidized oil that breathed life into Cuba’s sclerotic economy.
China has become Venezuela’s second-largest trading partner during Chavez’s tenure, investing billions of dollars a year aimed mainly at securing greater access to the country’s oil wealth. As result, China also has an interest in seeing Chavez’s policies maintained.
Given those vested interests, any celebration by the US would be premature. Over the long-term, though, a transition in Venezuelan policy is likely.
In Chavez’s last election, he won by just 55 percent of the vote. Given that the wealthy and others who could be expected to be natural enemies of Chavez’s policies make up a tiny fraction of the electorate, that’s a solid indication that Chavez was losing ground with the poor.
That’s probably due to the fact that Chavez and his government were facing difficulties in maintaining the status quo he had created.
Venezuelan oil production has stagnated for the past few years, because of a lack of investment. Moreover, prices were already depressed thanks to the global recession a few years ago. Infrastructure is also severely lacking in the country and little headway has been made on that front, despite the fact that infrastructure investment improves economic efficiency and creates a trickle-down wealth effect.
Venezuela also has been dealing with an overvalued currency, which has eroded consumer purchasing power. Moreover, the country has struggled against a hard currency deficit, because of its pariah status with much of the developed world.
Finally, food shortages are becoming more commonplace, stemming from a lack of imported goods from sugar to cooking oil.
Over the long haul, if Chavez’s socialist adherents wish to maintain power, a number of reforms will have to be implemented. They clearly recognize that fact, because Maduro recently opted to push forward with plans to reform the country’s currency exchange system, along with changes to oil revenue calculations and fuel subsidies. All of those reforms have the potential to be massively destabilizing, so it’s telling that he proceeded even as Chavez was reportedly in Cuba seeking cancer treatment.
So while Venezuela isn’t likely to embrace developed nations any time soon, Chavez’s death appears likely to fuel a gradual transition.
Chavez’s successors can’t simply mimic the departed strongman; he possessed a unique charisma that now leaves a void. They will need to provide fresh alternatives or face widespread dissatisfaction across Venezuelan society. Within a few years, Western oil interests could find themselves welcomed back—and free market dynamism just might be reborn in this vast and proud Latin country.
Portfolio Roundup
Mindray Medical International Limited (NYSE: MR) reported that 2012 sales grew by 20.4 percent year-over-year to $1.1 billion, the first year it has broken $1 billion in revenues.
Domestic Chinese sales grew by 26.4 percent, largely thanks to an expanded sales force and higher hospital spending, while international sales rose by 15.9 percent over the full year.
Earnings per share (EPS) for the year totaled $1.50, a 6.9 percent increase over 2011, helped by a 2.7 percent reduction in expenses, which came in at 17 percent of net revenue in the fourth quarter.
Given Mindray’s strong performance, its board has declared a 50 cent dividend, a 4 cent increase over last year, to be paid on April 8 to shareholders of record on March 8.
Management said that it expects 2013 emerging market sales to slow, due to political instability and currency risks in some regions. However, overall it expects revenue to grow by at least 17 percent this year, thanks to continued growth in Chinese sales. And while management looks for developed markets to remain challenging, it plans to continue working on product approvals in both the US and Europe.
One of the first populist leaders to come to power in South America in the 21st century, Chavez’s policy of nationalizing oil wealth proved hugely successful with the Venezuelan masses and, coupled with suspected electoral shenanigans as well as largesse for the poor, kept him in power for nearly 14 years.
But it also earned him the enmity of liberal democracies and business interests around the world, particularly when ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) found themselves divested of their Venezuelan assets in 2007.
That was a bitter blow for those two oil giants. The US Geological Survey estimated that the Orinoco Belt, a geologic formation stretching across northern Venezuela and into its territorial waters, could contain well over 900 billion barrels of crude, which would make it one of the largest oil fields in the world.
If that weren’t enough, Chavez exhibited the predictable tendency to blame many of his country’s ills on the shadowy interference of “US imperialism,” a kneejerk habit that Chavez and his coterie couldn’t break, even at his death. The Venezuelan government now alleges that US agents infected Chavez with the cancer that ultimately caused his death at the age of 58.
While his passing is certainly a relief for America, Chavez’s death doesn’t necessarily mean that anything resembling a liberal democracy will rise from his ashes. In fact, Chavez rose to power precisely because his predecessor attempted to liberalize the country’s economy.
In 1989, then President Carlos Andres Perez assumed office amid a crippling economic crisis in Venezuela, forcing him to accept a USD4.5 billion loan from the International Monetary Fund. Along with the money came a set of conditions known as the “Washington Consensus” which required him to cut budget deficits, eliminate subsidies, liberalize both interest rates and trade and privatize most state enterprises.
Because of those conditions, subsidies on fuel, food and a number of other goods aimed at providing relief for the country’s rural poor came to a sudden stop, sparking protests across Venezuela with the capital of Caracas serving as the focal point for discontent.
Against that backdrop, Chavez attempted his first rise to power, leading a failed coup against Perez in 1992. But given Chavez’s popularity with masses, he was treated with surprising leniency and even appeared on Venezuelan television to call for an end to hostilities, famously quipping “… for now.”
After less than two years in prison, Chavez emerged a hugely popular national figure and spent the next five years solidifying support for his socialist movement, carrying him to electoral victory and political legitimacy in 1999.
A major driver of his popularity was his promise to restore most of the subsidies eliminated as part of the Washington Consensus, a campaign pledge he eventually met.
The Mantle of Bolivar
While a new generation of voters has come of age in the intervening years, most of the electorate still remembers their period of hardship in the late 1990s. And thanks to the tight control Chavez maintained over most aspects of the Venezuelan state and media, young voters have been thoroughly indoctrinated in his revolutionary, anti-Western “Bolivarian” ideology, named after Simon Bolivar, the revered 19th century general who secured independence from Spain for much of Latin America, including Venezuela.
As a result, Vice President Nicolas Maduro, who also happens to be Chavez’s anointed successor, is widely expected to carry elections that should be called sometime next month. Chavez’s blessing will be a real advantage in those elections and Maduro is also expected to receive the support of China and Cuba, both of which have substantial political and economic interests in the country.
Fidel Castro has treated Chavez as a fellow traveler and believed he would carry the socialist banner in Latin America well into the 21st century. Accordingly, Castro’s government provided him both material and political support, as well as heavily subsidized oil that breathed life into Cuba’s sclerotic economy.
China has become Venezuela’s second-largest trading partner during Chavez’s tenure, investing billions of dollars a year aimed mainly at securing greater access to the country’s oil wealth. As result, China also has an interest in seeing Chavez’s policies maintained.
Given those vested interests, any celebration by the US would be premature. Over the long-term, though, a transition in Venezuelan policy is likely.
In Chavez’s last election, he won by just 55 percent of the vote. Given that the wealthy and others who could be expected to be natural enemies of Chavez’s policies make up a tiny fraction of the electorate, that’s a solid indication that Chavez was losing ground with the poor.
That’s probably due to the fact that Chavez and his government were facing difficulties in maintaining the status quo he had created.
Venezuelan oil production has stagnated for the past few years, because of a lack of investment. Moreover, prices were already depressed thanks to the global recession a few years ago. Infrastructure is also severely lacking in the country and little headway has been made on that front, despite the fact that infrastructure investment improves economic efficiency and creates a trickle-down wealth effect.
Venezuela also has been dealing with an overvalued currency, which has eroded consumer purchasing power. Moreover, the country has struggled against a hard currency deficit, because of its pariah status with much of the developed world.
Finally, food shortages are becoming more commonplace, stemming from a lack of imported goods from sugar to cooking oil.
Over the long haul, if Chavez’s socialist adherents wish to maintain power, a number of reforms will have to be implemented. They clearly recognize that fact, because Maduro recently opted to push forward with plans to reform the country’s currency exchange system, along with changes to oil revenue calculations and fuel subsidies. All of those reforms have the potential to be massively destabilizing, so it’s telling that he proceeded even as Chavez was reportedly in Cuba seeking cancer treatment.
So while Venezuela isn’t likely to embrace developed nations any time soon, Chavez’s death appears likely to fuel a gradual transition.
Chavez’s successors can’t simply mimic the departed strongman; he possessed a unique charisma that now leaves a void. They will need to provide fresh alternatives or face widespread dissatisfaction across Venezuelan society. Within a few years, Western oil interests could find themselves welcomed back—and free market dynamism just might be reborn in this vast and proud Latin country.
Portfolio Roundup
Mindray Medical International Limited (NYSE: MR) reported that 2012 sales grew by 20.4 percent year-over-year to $1.1 billion, the first year it has broken $1 billion in revenues.
Domestic Chinese sales grew by 26.4 percent, largely thanks to an expanded sales force and higher hospital spending, while international sales rose by 15.9 percent over the full year.
Earnings per share (EPS) for the year totaled $1.50, a 6.9 percent increase over 2011, helped by a 2.7 percent reduction in expenses, which came in at 17 percent of net revenue in the fourth quarter.
Given Mindray’s strong performance, its board has declared a 50 cent dividend, a 4 cent increase over last year, to be paid on April 8 to shareholders of record on March 8.
Management said that it expects 2013 emerging market sales to slow, due to political instability and currency risks in some regions. However, overall it expects revenue to grow by at least 17 percent this year, thanks to continued growth in Chinese sales. And while management looks for developed markets to remain challenging, it plans to continue working on product approvals in both the US and Europe.
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