I'm generally a fan of the FT's Lex column. And today's column on Venezuelan banks and the administration's lenient attitude toward contract law and property rights doesn't wander too far from the reservation. I would simply point out however that it relies on certain assumptions that have thus far managed to remain suspended from realisation on the ground in Venezuela, the most basic of which is that two plus two, indeed, equals four.
As John Maynard Keynes once famously quipped, "the market can stay irrational longer than you can stay solvent." In other words, there is quite a difference between knowing the way things should be versus knowing when things finally manifest as such. In the Venezuelan context, knowing how things should be is only half the battle. Primo Hugo, like it or not, is forcing the market to stay irrational for as long as absolutely possible.
The foreign investors in Venezuela that Lex refers to surely know, as Lex and many of the rest of us do as well, that sooner or later the Chávez administration must start behaving itself and understand that it cannot go around expropriating at will without post facto repercussions. How far can it push the envelope? If Primo Hugo continues his current practices, at some point foreign investors - and that means not just Westerners but also the Chinese, Russians, Indians - will at some point push back and demand some notion of predictability to be built into the negotiations. We all know how things should be. When will they be as they should? If I were a gambling man, which I occasionally am, I'd sooner take my money to the roulette wheel.
Let's hope I'm wrong.
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