Venezuela: When you have to take the bad with the good
Venezuela's economy is a two-sided coin; the economy looks promising, but the government is frightening. It's a tough call, but as long as the country remains stable, finances should remain in good shape. Though the economy is beginning to show signs of recovery from a very dismal 1999, even the strong increase in oil prices during the year 2000 couldn't really lift Venezuela's head above water. Hopefully a high growth rate in the manufacturing industry and a far-reaching public investment program will lower unemployment and speed the recovery process.

First and foremost, Venezuela needs to radiate stability, a characteristic it has been lacking for quite some time now. Obviously, before you pour your money into foreign investments in any country, you have to make sure the nation is secure. As soon as it seemed that a firm foundation might finally be in the works, Venezuela's framework started wobbling again. Unfortunately, it looks as though the new president wants to stir things up now that his country stands a fighting chance again.

High Fidelity
In October of 2000, Fidel Castro visited Venezuela for a five-day slumber party with President Hugo Chavez. During Castro's first state visit to the country in 40 years, the two leaders hosted a radio talk show, played baseball, and gushed over photos taken of the two of them. And they also signed a very controversial five-year oil pact. Under the treaty, Venezuela will provide oil assistance to Cuba under "favorable financial terms." This translates into Venezuela handing over 53,000 barrels of oil a day — an amount worth more than US$500 million a year — while Cuba pays by helping Venezuelan medical patients and improving tourism, sports, computer technology, and scientific research. Not exactly a fair trade, but hey, it's Castro we're talking about.

Opponents believe the pact was a bad move for Venezuela, a country that can't afford to play risky games. Although Venezuela has signed similar pacts with Central American and Caribbean nations, these don't threaten the economy the way a pact with Cuba might, especially considering how it could interfere with U.S. relations. Venezuela is the world's third greatest oil exporter, and Chavez's outright defiance of U.S. attempts to isolate Cuba will weaken connections between his country and its biggest oil market.

Promises, promises
Many are wondering what President Chavez is really up to. After leading an unsuccessful 1992 revolt, he was imprisoned for two years. Since his election in 1998, he has done away with the old Venezuela, a moderate Latin American nation with favorable ties to the United States. His refurbished country now lacks the traditional congress, supreme court, and two-party system that led Venezuela for 40 years. Although Chavez claims to be helping the citizens by taking the power from political parties and putting it back in the hands of the people, the populist leader is already distrusted by many.

Venezuela's private sector is quite disappointed with the buddy-buddy romp between Hugo and Fidel and the resulting economic pact, because it feels the money could be put to better, more immediate use. Rather than relying on flimsy promises from Cuba, the country could be using profits from its oil exports to produce more tangible results, like creating jobs and paying off billions of dollars of government debt. Chavez argues that his plan is to unearth political corruption and boost social spending. He defended the pact as a confirmation of his dedication to the improvement of developing nations. Anyone else smell trouble?

What's an investor to do?
Still, don't abandon all hope yet. Venezuela is sure to stay out of trouble as long as oil prices remain high. And as long as its leaders (with Castro's encouragement) don't write off the United States as a bunch of undeserving capitalist pigs. A study by Goldman Sachs in October of 2000 rated the Caracas Stock Exchange, Venezuela's major market, third in the world. It certainly boasts the best yield performance (14.5% growth), surpassed only by China and Canada.

This is a tough call. It's the devil on one shoulder, angel on the other dilemma. Which is the smarter choice? The economy looks good right now. Venezuela is rebounding from difficult times, and has set the sky as its limit for potential growth. You could invest and earn a lovely profit. But then there's that glorious friendship between the world's most notorious communist dictator and a former military leader who led a failed coup less than ten years ago. Not to mention the anger and suspicion of 20 million poverty-stricken Venezuelans, who fear that this sudden man-to-man bond will turn into a country-to-country alliance. It's pretty unstable, and you could come out empty-handed.

My advice? Use your best judgment. Invest in that great telecommunications stock with our Venezuelan friends and neighbors, but be ready to sell off at the first sign of political turmoil. If all goes well and no unexpected disturbances arise, expect high growth and continuing economic progress.

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