Chavez has a cash flow problem
...Unfortunately Obama maybe feeling his pain soon because he is making many of the same mistakes Chavez made by nationalizing companies and vastly increasing spending at a time of declining revenues. Chavez has maxed out his credit cards and is trying to lure other investors right after he has taken over the investments of previous investors. Anyone who invest in Venezuela now is asking to have their investment taken whether they make money or not.
... A stronger dollar and reduced demand for crude has meant fewer dollars flowing into Venezuela. Add in what industry analysts say is a significant drop in output due to the politicization of the oil monopoly known as PdVSA, and it's easy to see why central bank reserves have been shrinking.Mr. Chávez has felt the pinch. He has had to pare back his practice of financing revolutionary allies in the rest of the hemisphere. The country's ability to pay for imports -- of everything from food and pharmaceuticals to industrial machinery and automotive parts -- has also deteriorated. The exchange rate is fixed at 2.15 bolivars to the dollar, but the central bank cannot supply importers at that rate. The black market rate is 6.5. Fewer dollars for greasing the palms of the domestic interests that keep Mr. Chávez in power is also a looming problem for the tyrant.
No one understands how much the future of the regime depends on restoring Venezuela's gusher of dollars than Mr. Chávez. If the Fed accommodates him by continuing to weaken the dollar, he might survive. In the meantime, he is scrambling to stay ahead of the snowballing economic catastrophe heading his way.
On the political front, he is working to make sure that his opponents have no resources. He has been stripping opposition mayors and governors of their budget revenue and their authority over schools, hospitals and police. Caracas Mayor Antonio Ledezma, an important Chávez critic, has also been physically locked out of city hall by chavista street thugs since he was elected in November.
On the economic front, PdVSA appears to be in increasing financial trouble due to graft and incompetence. This explains Mr. Chávez's nationalization of more than 70 oil service contractors last month.
The Caracas-based VenEconomía newsletter noted that he made a big deal about the seizures in a photo op on the shores of Lake Maracaibo. But it said a larger concern ought to be the simultaneous takeover of five gas, steam or water injection plants, which "sustain roughly half of today's [crude] output." The report notes that "many analysts warn that PdVSA does not have the knowledge or the skills to run those plants efficiently" and if that's true, the company could lose significant capacity. Injection revives spent wells.
So why did he do it? VenEconomía theorized that the government may have sought to stop the companies "from closing down operations in protest [of] PdVSA's failure to pay several billion dollars worth of past-due bills." Others have said PdVSA is trying to save money.
In either case, the reason is the same: Mr. Chávez is short of hard currency....
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Inflation has been a problem in Venezuela for several years and it is likely to get worse as Chavez cash flow problems get worse. He has been running his country like Zimbabwe for sometime and he may start getting that kind of inflation soon.
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