Venezuela: Unexpected Turn
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of This Issue:
most tumultuous week in Venezuela’s recent history ended with the dismissal
and later reinstatement of President Chavez to power.
political situation is likely to remain very fluid over the next few weeks.
While we hope that President Chavez’s conciliatory tone on Sunday continues to
be followed with actions that will create a minimum of national unity, we fear
that the divisions in the Venezuelan society run very deep.
final developments of last week turn out to be a severe setback for the
opposition, and most likely it will give new life to the President. His survival
will depend on how he behaves over the intermediate term.
events of the last week, and what can be expected in the weeks ahead are
suggestive of a deepening recession. It is hard to imagine a private investment
recovery over the intermediate term given the political uncertainty.
the high level of uncertainty, we expect capital flight to resume in the not so
distant future, and pressures on the exchange rate to resume. In our view,
capital controls cannot be ruled out over the intermediate term.
is hard for us to envision the Chavez government implementing increased fiscal
discipline under the current context, and we would assume that it will in fact
pay the 20% increase in the minimum wage it promised, along with other populist
measures likely to be in the works over the next few weeks.
believe a strategy favoring Venezuela exposure looks risky.
uncertainty will remain high and we are likely to see a sizeable deterioration
in country risk going forward, which is likely to be a significant overhang for
the equity market. We are removing our exposure in Venezuela, taking CANTV (VNT;
of our model portfolio and putting the money back into our cash pile.
Macro Insights ZIP
Latin America Strategy
(54) 11 4317-7605
Santiago Lima Quintana
(54) 11 4317-7565
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