Sunday, October 19, 2014


If you thought that Country Risk for Venezuela was already at dizzying heights, meaning that further financial exposure or investment is extremely dangerous, it just exploded off the charts. The price of oil, which Venezuela depends upon for 95% of its foreign exchange, has fallen to $82/bbl. Considering that the Government of Venezuela calculates the value of its oil at $120/bbl., the sharp decrease in oil prices means that the government could literally run out of capital for official services.

The Bolivar (BsF) continues to hover around 100 to one US Dollar ($1.00), meaning that it is worth essentially one penny in foreign exchange, which continues to inflict serious damage upon the Venezuelan economy, add that to the oil price drop, and you have a perfect storm. It will be unable to maintain current social programs, the subsidized gasoline price for consumers, and many other expenditures that keep the current Venezuelan regime afloat.

Where will the new revenue come from ? I have a few educated guesses, and you will not like any of them:

(1) The seizure of assets of foreign companies operating in Venezuela.
(2) More cooperation with transnational drug trafficking organizations.
(3) Assisting Hezbollah Venezuela with its illicit revenue-generating activities.
(4) Seizing assets of Venezuelan nationals linked to the Opposition, after charging them with a crime under some pretext.
(5) Selling more diamonds or gold to Iran.

All of the foregoing possibilities will result in increased Country Risk for Venezuela. Frankly, any US or EU financial institution that now extends itself in Venezuela, whether with the government, or in the private sector, had better be prepared to lose the entire amount, for a total economic meltdown could occur at any time. Basic risk management principles dictate no new involvement.


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