Published On: Wed, Nov 20th, 2013

Maduro’s OPM (Other People’s Money)

dekker_0As of 19 November, 2013, President Nicolas Maduro of Venezuela rules by decree. His rule requires no parliament and cannot be challenged by opposition, or courts. Whatever Maduro decrees, is law. Thus, Maduro has unlimited license to take whatever he wishes to take, and to give to whoever his wishes to give.

As a prelude, last week’s government forced inventory sell off in Daka, a chain of electronics stores, like Best Buy in the USA, at government dictated prices, demonstrated this impact. Undoubtedly, the dictator’s new powers will accelerate major changes in the Venezuelan economy. The big question in Curacao is , how will the new Venezuelan economic reality effect the island.

1. Hospitality: Venezuelan tourism towards Curacao, once the most important neighbor customer, has been on the decline for years. Lack of dollars at the official exchange and a parallel dollar at rates of 8-10 times the official exchange, made any travel prohibitively expensive for Venezuelans. A further sharp decline can be expected. About 2000 rooms at private houses, small pensions and hotels on Curacao cater to Venezuelan “dollar-poor” tourists. Occupancy of these accommodations has been dropping steadily and dramatically over the last years. In desperate attempts to survive, the entire market is cannibalizing itself in deadly price wars with regular chain hotels. The strong dollar and very weak Bolivar will stimulate many islanders to spend their money in Venezuela, which again negatively effects the balance of trade.

2. Travel: DAE –airlines already folded, leaving large uncollectable amounts outstanding at the Venezuelan exchange authority, Cadivi. INSEL -air also announced sharp reductions of capacity and is desperately trying to collect US $ 50 million from Cadivi. A further devaluation of the Bolivar, may put the airline’s existence into jeopardy. Tiara Air of Aruba had to be bailed out by its local government, since it was unable to collect from Cadivi either. Cadivi owes more than US dollars two billion to international airlines. Hato, Curacao airport, has to take into account a loss of passengers’ fees for about 50,000 persons per month. Local airlines may observe an increase of travel towards Venezuela from the island.

3. Trade: The prosperity of the FREE ZONE of Curacao depends heavily on Venezuelan’s lust to import. Due to a prolonged shortage of foreign exchange reserves, run-away inflation at 50% per year, and Bolivar devaluations, all trade towards Venezuela declined sharply. Recently, twelve shops in the FREE ZONE announced closure, and many may follow. It is not clear to what extend the FREE ZONE will be able to function as a sales outlet for Venezuelan products. Production out put in Venezuela , other than oil, has decreased sharply over the 14 years of Hugo Chavez regime.

4. Investments: Venezuela was one of the largest investors on the island, Sambil, a mega shopping mall under construction, being the latest. If Venezuelan exchange authorities will not release the investment dollars, and the off shore trade by these companies is deemed illegal by presidential decree, all these investment will come to a total stand still. Supposedly, there is already ample talk of discontinuation of construction of part of the Sambil project. Existing Venezuelan ventures, like The International University at the WTC will no longer welcome students with tuition-dollars from Venezuela., and their revenue stream may dry up completely.

5. Manufacturing. Pdvsa, the Venezuelan oil company and lessee of the Refineria di Korsou, is by far the largest manufacturer on the island of Curacao. Its products and international sales are desperately needed by both countries, but the cost of production at Venezuelan refineries is 5-10 times lower than on Curacao. Pdvsa refineries in Venezuela all have considerable overcapacity; officially they operate only at 70% capacity. For Pdvsa it would make great economic sense to close down the Isla and move production back home.

6. Shipping: Trans shipment of oil products is a very large segment of the economy of the Curacao harbors. Such business would come to a total stand still, whereas storage at Bula Bay may not be effected.

7. Crime. International trans border organized crime of Venezuela is mostly cocaine related. With the thirst for dollars, high unemployment, and ease of facilities and available infrastructure on Curacao, it is likely that the cocaine transshipment economy will increase dramatically. Conclusion. The little island of Curacao, with only 150,000 inhabitants, will be effected strongly by any change of economy of its neighbor country, Venezuela, with 28 million inhabitants. Whether the effect will be negative or positive depends very much on how the new dictator, President Nicolas Maduro, will deal with the entrepreneurs of his country and their money, other people's money in Bolivar and US dollars.

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