Latin American Crisis: Neo-Com Debacle Brewing in Venezuela

By J. Christoph Amberger
Venezuela President Hugo Chavez, who has just helped himself to the privilege of ruling by decree -- has come up with an innovative plan to curb inflation in Venezuela. (The annual inflation rate, fired up by the petro-dollars Chavez has been pumping into the poverty-ridden Venezuelan population to grease his reelection, just rose to 18.4% in January from 10.4% in May and is the highest in Latin America.)

He intends to simply lose three zeros from the currency exchange rate by February 2008. Because, of course, if you decree that a currency should buy more, that’s what will happen.

Economics by decree is, of course, a trademark of communist regimes… even if Chavez himself likes to use the euphemism “Bolivar” instead of the C-word. But what quacks like a duck frequently turns out to be a duck: After nationalizing strategic industries like energy, telecommunications and the free press, he is already using the time-honored clichés of Marxism-Leninism to prepare the ground for the next stage.

He has threatened to clamp down hard on the traditional communist bogeymen, “speculators” -- whose moniker applies to anyone selling food for more than government-mandated prices, to halt last month's 4 percent% increase in the cost of food.

Bloomberg summarized, “Price regulations and other controls, including a crackdown on businesses buying currencies outside official government channels, have helped to make food production unprofitable, leading to a decline in supply and spurring inflation.”

According to media reports, visa applications of middle class Venezuelans to emigrate (to Spain, Argentina, and the United States) are already on the rise, making a crackdown on free travel and the mobility of capital probable for the next couple of months.

We consider this rogue regime an economic catastrophe waiting to happen: In the February edition of Taipan, we told you what stocks to sell in the region. I now believe that any portfolio exposure to Latin America is extremely dangerous, as the mismanagement of the Venezuelan economy will have massive fallout on the entire continent.