Thursday, August 17, 2006

Venezuela: banking on the revolution

The Financial Times today reports on how the banking sector is faring in ‘revolutionary’ Venezuela. The headline tells you much of what you need to know:

Venezuelan bankers get rich from Chávez's revolution

Bankers traditionally face firing squads in times of revolution. But in Venezuela, they are having a party.

Dirán Sarkissián, president of the local subsidiary of Stanford Bank, a US bank with offshore operations based on the Caribbean island of Antigua, is proud of his rapidly lengthening list of high-net-worth customers who are enjoying President Hugo Chávez's self-styled "Bolivarian Revolution".

"As far as growth is concerned we're very happy," says Mr Sarkissián. That might be an understatement. Deposits have increased by 600 per cent to $106m (£57m, €84m) in the year since the boutique bank opened for business in Caracas …

Venezuela's abundance of usually limitless "black" credit cards would seem to sit uncomfortably with Mr Chávez's fiery anti-capitalist rhetoric and his occasional threats to jail bankers …

… So far, rather than nationalise banks, the "revolutionary" distribution of oil money has spawned wealthy individuals who are increasingly making Caracas a magnet for Swiss and other international bankers. And it is not just private bankers who are banking on the revolution.

Francisco Faraco, a banking consultant, says local commercial banks are enjoying their most profitable times ever under Mr Chávez: "Venezuelan banks have not seen a contraction during a single quarter since 2003."

In 2002, when oil prices were low and the economy was in deep recession, the Chávez administration issued billions of dollars' worth of high-yielding domestic debt that was lapped up by the banks. Double-digit interest rate margins left the country's banks among the most profitable in Latin America.

But as oil prices have since soared, government spending has risen by 70 per cent and the economy has grown rapidly - by 17.9 per cent in 2004 and 9.3 per cent last year. Spending and exchange controls have led to a big expansion of liquidity and stoked demand for credit …

In recent months the government has bought $3.6bn of Argentine bonds, the bulk of which it has sold at the official bolívar exchange rate to local banks to absorb excess liquidity. In turn, the banks resell the bonds and profit by buying bolívars at a tolerated, higher black market rate.

How much the banks earn from the arbitrage trades is unclear, as short-term operations do not appear on their balance sheets. But some economists estimate that for some banks they could represent the largest item of income.

"Thanks to some bankers' warm relationship with the government, banks in Venezuela have been doing extremely well, in fact better than what their official balance sheets suggest," says Mr García …"

In fairness, the article does end by quoting a couple of analysts who believe that the good times for Venezuelan bankers could stop rolling fairly soon, especially if Chávez goes ahead with proposals to regulate deposit and lending rates.

Nevertheless, it does provide food for thought for those on the left, such as the Socialist Appeal group, who are almost uncritical in their assessment of that country.

Don’t get me wrong. I'm not as negative as the likes of the AWL on this issue. I do think that in so far as the Chávez/Castro/Morales axis does provide a concrete alternative model to Latin American neoliberalism, the western left should extend a degree of critical support. The danger comes in painting radical nationalism red.

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