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Kate Walker: The broke funding the broke…

In her latest exclusive column for Crash.net, Kate Walker looks at the financial situation in Venezuela and why PDVSA's involvement in F1 could be a saving grace...
It is no stretch of the imagination to say that the Venezuelan economy has seen better days.

Last year saw violent fights over shortages of food and basic commodities in cities around the country, while escalating inflation only exacerbated the situation. This year, prices are continuing to climb with a staggering rate of inflation of 56.2 percent.

The picture is no prettier for the government: since 2012, Venezuela's gold and foreign currency reserves have plummeted by one-third, and the country holds only $2 billion in liquid assets. The country is running perilously close to insolvency, and its burden of debt is becoming insurmountable. According to The Economist, “the country's arrears on non-financial debt … include more than $3 billion owed to foreign airlines for tickets sold in bolívares, and around $9 billion in private-sector imports that have not been paid for because of the dollar shortage.”

That dollar shortage is causing practical pain as well as financial. Foreign companies are cutting back on or stopping their business with Venezuela due to non-payment of bills, with the result that basic commodities from food to medicine are becoming ever harder to source. Government debts to private firms are affecting production at companies whose foreign suppliers are threatening to stop shipments of raw materials.

But the government is attempting to ameliorate the situation with stricter currency controls, even if their crisis prevention methods have been roundly criticised by expert analysts. A new law restricting corporate profit margins has been introduced, while private citizens have seen cuts to the amount of money they can take (or send) overseas.

It is a financial climate that makes PDVSA's contracted sponsorship activities somewhat hard to stomach, but legal obligations must be fulfilled. And if the Venezuelan government has the balls to rethink its foreign investment policy, PDVSA's relationship with the global entity that is Formula One could yet become the country's saving grace.

PDVSA is vital to the Venezuelan economy – the state-owned oil enterprise is solely responsible for 96 percent of Venezuela's foreign earnings. But in recent years oil production has stagnated, and strict controls on foreign involvement in the industry have blocked sorely-needed investment. If those controls are relaxed, PDVSA's F1 presence is a 19-weekend advertisement to potential investors.

Relaxing rules on foreign investment doesn't need to mean a return to the days when Venezuelans barely profited from their own natural resources. But with the situation as things currently stand – and with PDSVA such a cornerstone of the country's economy – isn't a situation where Venezuela earns (say) 60 percent of the profits of a growing business preferable to being dependent on 100 percent of a company in decline?

Kate Walker

Kate Walker is the editor of GP Week magazine and a freelance contributor to Crash.net. A member of the F1 travelling circus since 2010, she keeps an eye on the behind the scenes wheeling and dealing that makes Formula One a political melodrama.


Tagged as: pdvsa , Kate Walker

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Taz

February 12, 2014 12:09 PM
Last Edited 312 days ago

Is this a press release for PDVSA? Corruption in PDVSA is endemic, it's a well known fact in the oil industry. if PDVSA in it's current state is the answer to the Venezuela economy then they are stuffed. RBS used to sponsor an F1 team, that did the UK economy a power of good....oh hang on. Seriously, you need to research the subject matter a little further.

GenoUSA

February 12, 2014 4:46 PM
Last Edited 312 days ago

The bus driver in charge of that country (and his predecessor) have run it into the ground with their ridiculous economic policies. Inflation there is like nothing seen in 30 years. Venezuela was very rich with petro dollars and has managed to squander almost all of it in pursuit of state power and communist ideology. The stores are out of toilet paper, yet they are paying for Maldonado to run in Formula 1.



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