Friday, July 18, 2008
Chavez Corners The Market On Irony
Venezuelan President Hugo Chavez wore a suit for the occasion, and, grinning at about 300 business leaders he usually calls ``oligarchs,'' asked for help relieving a drought in investment.There is nothing like an economic retractioni to make an aging socialist into a capitalist. Given his behavior as recently as May, I have doubts about the response. In other news, Argentina's legislature rebuffed the ag export taxes that have been causing so much furor there.
``Those of you who have money abroad, bring some home,'' he implored company executives gathered June 11 at the former Caracas Hilton, a hotel taken over by the government last year. ``Let's ally ourselves, let's elevate production as much as we can,'' he said to scattered applause.
After squeezing the private sector for almost a decade with nationalizations and foreign exchange controls, Chavez is holding out the lure of lower taxes and $1 billion of loans to spark growth and combat spiraling inflation that only ramped up production can solve.
This is not good news for American progressives, who cheered the new rise of socialism in SA even as they mourned Canada's selection of Harper. Obama might want to think twice about a few of his proposals; the US competes for foreign investment and domestic investment in a world market just as Venezuela does.
In Japanese news, Nippon Oil is changing the way it sets prices, with the implication being that it may have to sell some refinery output overseas. The consequence is that local pricing for end users will rise. The current situation is an extremely difficult one for the Japanese economy due to its status as an island nation which cannot produce enough food for its population and a manufacturing powerhouse that is highly limited in its production of raw materials. It is acutely sensitive to rises in energy costs which boost food and input costs. Bonds rose overnight on previous news that some BoJ board members favored weighting growth, and these BoJ comments are probably aimed at controlling inflation expectations. This is part of the reason that I expect the yen to have a downward trajectory against most major currencies.
The contrast between the relatively healthy position of Japan - a nation which is highly disfavored by current economic circumstances - and the Venezuelans, who have been bent on wresting decline from the jaws of economic success, should give everyone pause. No one can avoid the ups and downs of economics, which sometimes favor one nation over another, but public policy need not throw away the good times and enshrine the bad as the core of the domestic economy.
Energy prices will continue to fall. Japan's economic trajectory in the near term depends on how quickly they do. But when energy prices fall, Venezuela is going to get a massive kick in the teeth.
Some of these nations will turn from exporters to importers in a decade if they don't mend their ways (Iran, Mexico in particular). They need more production investment and fewer domestic consumption subsidies.
Of course, imagine if our Congress owned the oilfields. They'd loot them blind. That's exactly what some of these other governments have done.
There is also the implication that this technology can be used on already-played-out dry fields to boost yield.
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