Chavez government reportedly laying ground work to exit investor dispute panel.
Multinational companies doing business in the Venezuela are already looking for ways to exit the country as doing business there gets more and more difficult. And now the government of Hugo Chavez has added one incentive: it plans to pull out of the global forum most companies use to settle investor disputes.
According to the Wall Street Journal, Venezuela faces more than $40bn in claims for properties it has nationalized over the past few years. It has been reluctant to pay the claims and now wants to pretty much guarantee it never does by withdrawing from the International Centre for the Settlement of Investment Disputes, or ICSID, which is a unit of the World Bank in Washington. In anticipation of any protest, Venezuela is moving its investments and gold, currently located in foreign banks, to safer havens. Investments would go to Venezuela-friendly countries like Russia, China and Brazil banks. The gold it plans to move to Caracas.
For treasurers who manage corporate cash in the region, this is just another layer of worry. In a per-meeting survey from early 2011, members of the NeuGroup’s Latin American Treasury Managers Peer Group (LATMPG) were split over what to do amid the region’s deteriorating business climate. Almost all LATMPG treasurers reported spending a disproportionate amount of time on Venezuela, especially given the shrinking size of the market compared to emerging powerhouses like Brazil. Sentiments on the country ranged from outright negative to long-term positive: about half reported that they’d love to sell inventory and get out now, and about half reported that they hope to stay the course by borrowing in local currency, managing the business through distributors, declaring maximum dividends, and not getting involved in politics.
Only one pre-meeting survey respondent reported fearing expropriation by the government. But with this latest news, that number is sure to grow. The WSJ said Venezuela has expropriated 988 companies, 401 so far this year, citing figures from Conindustria, a Venezuela industry group.
And if expropriations are worry enough, there also have been rumors of new rules on the size of profit margins companies would be allowed to make.
Treasurers are already constrained by what they can do in Venezuela. For instance, after the shut-down of the parallel market, companies really have no legal way of extracting their trapped cash (see related story here). And any innovative cash-extraction strategies are viewed as being associated with too much risk — and not only the reputational kind. For those who can stomach the extra administration hassles of operating multiple legal entities (one for each type of qualifying dollar purchase, essentially) do so as long as the benefits are significant enough. One can only imagine that Venezuela’s latest move diminishes those benefits even further. Ultimately, it’s either exit entirely or play the waiting game and hope conditions improve.