Posted by: Paula Delgado-Kling | January 29, 2013

A destabilized Venezuela is good for Colombia’s foreign investment in the oil sector

People have asked me: why do you write about Venezuela in this blog? — In short: what happens in Venezuela determines, to some degree, the amount of investment in the oil sector in Colombia. A stable (read: a non-Chavez) Venezuela translates into more foreign investment in the oil sector in Venezuela, which means less foreign investment flowing into Colombia’s oil.

The turmoils in Venezuela have helped Colombia become the fastest-growing major oil producer in Latin America in the past five years.

Hence, it is with that light that Colombia should look at what experts predict for Venezuela now that Vice President Nicolas Maduro is filling in for a sick Chavez, in what may be the end of the Chavez era.

Moisés Naím, a scholar at the Carnegie Endowment for International Peacetold the New York Times: Venezuela faces a fiscal deficit approaching 20 percent of the economy, a black market where a U.S. dollar costs four times more than the government-determined exchange rate, one of the world’s highest inflation rates, a swollen number of public sector jobs, debt 10 times larger than it was in 2003, a fragile banking system and the free fall of the state-controlled oil industry, the country’s main source of revenue.

Naím added: Mismanagement and lack of investment have decreased oil production.

Francisco Toro, a Venezuelan political scientist and a consultant founder of Caracas Chroniclestold the New York Times: Venezuela’s debt has quintupled in 14 years. Time and again spending has been hiked just ahead of elections to give Chavistas an edge. This last one was no exception. … This kind of spending-led “socialim” can’t last. For years, Venezuela has been borrowing at credit-card level interest rates.

Michael Shifter, the president of the Inter-American Dialogue and an adjunct professor of Latin American politics at Georgetown University’s School of Foreign Service, told the New York Times:  If Chavistas retain power, they should quickly take steps to rein in spending, rebuild relations with Venezuela’s business and professional communities and encourage foreign investment. Revamping PDVSA, the state oil company, should also get high priority.

Anita Isaacs, a political science professor at Haverford College, told the New York Times: The prospect of armed conflict in Venezuela is real and should not be underestimated. Should political violence ensue, all bets are off on the Latin American front. Rather than play a productive role in the region Venezuela could arouse regional fears of a destabilizing spillover of violence, becoming instead the target of efforts at containment and peace making.

Conclusively: Venezuela is not creating the ideal conditions suitable for foreign investment, and it is up to Colombia to profit and increase oil production — and that is the reason why the FARC and other groups are attacking the Colombian oil infrastructure in hopes of forcing concessions from the government.

Related:

Hugo Chavez and the Venezuelan Elections:

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