On Wednesday, February 21, 2007, I delivered a speech entitled "Venezuela Under Chavez: Socialist Construction and National Chaos" at a conference sponsored by the Global Interdependence Center (www.interdependence.org). The event was held at the Federal Reserve Bank of Philadelphia. You may read the full text of my remarks by clicking here.




The reason why I chose to present this topic in such a provocative way is the lack of understanding by many risk managers for the nuances of political and economic developments in Latin America. An excerpt from my remarks follows below. Please let me know if you have any questions or comments.

Here's today's comment from the FT on the recall effort in VE.  Note that they give almost complete credence to the "democratic" opposition, while discounting the motives of Hugo Chavez.  Of course, Chavez was once part of the mob in the street.  Is there another Chavez waiting in the wings or has the "lider maximo" managed to purge the opposition, as the FT suggests?  The real question, it seems to me, is whether any leader will emerge to rebuild the country's civic institutions. Democracy without the rule of law is just a polite description for chaos.

Generally speaking, the financial markets don't give a banana peel about the political developments in Venezuela unless -- key point -- these events affect oil production.  As with the Middle East, gringos would never go there but for the black gold.

Heard in DC last week.  Coleman is a life-long Democrat from NY who switched to the GOP in 1996 and lost to Jesse Ventura in 1998 governors race. He chairs the Senate Permanent Subcommittee on Investigations and the Foreign Relations Subcommittee on the Western Hemisphere, which has taken him on travels to numerous Central and South American destinations, including Colombia, Cuba, Mexico, Brazil, Uruguay and Argentina. Has apparently not been in VE yet.  

If Hugo Chavez can take some time off from dismantling what remains of Venezuelan civic institutions, perhaps he could invite Senator Coleman down for a vist, tour the western frontier with Colombia, meet with some paras and hang out.

The celebration of Mexican corruption:

http://www.elcerebro.com/archivo/ratero.htm

Last blast on dollar inflation/deflation via a good summary from Dr. Molano on the China/LA dynamic. The low interest rates of the US Fed inflated China's bubble.  Deflation will affect the entire region, particularly Brazil. Note how state control over China's banks allows the communist klepto bureaucracy to loot bank deposits and thrive at the expense of broad population when bottom falls out.

Let the economic education continue.

The Banco de Mexico surprised the global bond market maggotry this week and raised short-term interest rates to head off inflation, a signal that "overheating" due to dollar weakness is becoming a problem.  With a number of regional economies already struggling, news that the tide is going out in terms of world commodity prices and growth may add further to existing political pressures.  Note also that the Bank of China just raised rates for same reason: internal bubble fueled by cheap dollars.  Ironically, in both of these "overheating" economies, there are more people in poverty and lacking opportunities than ever before.  Finally, everybody -- and I mean everybody -- assumes that investment grade status for Mexico means no sudden adjustments in the $/NP rate, but NP11 something per dollar is a bit rich, especially as the greenback rebounds.  See market comment below with my comments in [].