January 19, 2010
Mexico City (DF), Mexico

For such a pale skinned gringo, his Spanish was impeccable. We were both sitting in the business class lounge at the airport, and the fluidity with which he was prattling away in Spanish on his mobile phone caught my attention.

Ordinarily, given his very light complexion and European fashion sense, I would have guessed that he was Argentine; his accent, however, was devoid of the traditional telltale Argentine indicators– the “sh” and “zh” sounds, use of the ‘vos’ for the second person, etc.

I was a bit puzzled and had plenty of time to kill thanks to an incomprehensible flight delay, so when he finished his conversation, I asked him (in Spanish) where he was from.

“I’m originally from Britain, ‘mate.” He must have noticed my surprise at hearing the Queen’s English, so he followed that up with “but I’ve been living in Caracas for over 20-years.”

Needless to say, this sparked a lengthy conversation between us about the politics of Hugo, the real situation on the ground in Venezuela, and what he’s doing to protect himself. I’ll call him Baldwin.

First, a bit of background is required– it’s important to know where a person is coming from to get a better understanding of his decisions.

In Baldwin’s case, he is an engineer by training and had originally come to Venezuela in the late 80s to help design and build a new manufacturing facility for a large European company. He spent a few years on the ground, and when an opportunity came up to start his own firm, he jumped all over it.

For the past two decades, Baldwin has built up a Latin America focused construction and design firm that specializes in working with western firms who have unique design challenges– clean manufacturing rooms, hazardous material, etc.

His business, based in Caracas, has been successful. He still lives in the city with his beautiful Venezuelan wife, and they have several children and grandchildren.

The family, he quipped, is his anchor… his reason for staying in Caracas despite Hugo Chavez’s daily plundering.

By Baldwin’s description, Chavez seems bent on turning Venezuela into Cuba– absolutely everything larger than a bicycle and more profitable than a lemonade stand owned or controlled by the government.

Before Chavez, Baldwin described Caracas as near paradise, even despite the occasional political uprising or economic instability.

“In the early 90s,” he said, “the instability was at least predictable… you could plan for it. Today, nobody knows what this guy [Chavez] is going to do next… least of all him. A few years ago I became afraid for my business.”

So what does a successful British-born entrepreneur living in rapidly decline socialist empire do?

The first thing he did the second that Chavez came to power was move his money out of the country… and it was a great move, because a short time later the government imposed severe exchange controls.

Today, Baldwin maintains a small emergency cash hoard of dollars and gold coins, plus enough money in the local banks to pay the bills each month.

Because he is an expatriate Brit and doesn’t need to worry about paying taxes to the Queen, he planted a few banking flags in Switzerland and Chile, and generally denominates his accounts in US dollars.

Yes, he realizes that the dollar has been on a terrible slide, but it’s the hard currency of choice in Venezuela.

In the early 2000s, after the failed CIA-instigated coup against Chavez, Baldwin began aggressively expanding his business and opened a satellite office in Chile. This office serves as his business’s escape hatch, so that if the worst should occur in Caracas, he will seamlessly be able to move to Chile.

Structurally, his business is registered in Venezuela… this is less than ideal for him– he would prefer to have a Panamanian company conducting business in Venezuela, but Chavez makes it very difficult for foreign companies to do business there without a local enterprise.

Personally, he maintains his postal and email addresses in Switzerland. For any physical mail, the company will scan and email, or forward upon request, every item that he receives.

He and his wife also own a personal escape hatch on the Spanish coast where they intend to go, and bring the family, if things become much worse in Caracas.

“What’s your breaking point?” I said, “What would make you hit the eject button?”

Without hesitation he replied, “With a physical invasion of my home by the government, we’d be on the next flight. I know, we should probably leave before that even happens, but like I said, my extended family is my anchor… so I’m putting up with it all for now.”

Baldwin was certainly an interesting person, and I think his example illustrates two important points– timing is critical, as is preparedness.

He moved his money out of the country at the first sign of trouble, and thus he was able to safeguard his wealth. And with escape hatches for both his business and family, he is secure knowing that his life and livelihood are not under the control of a socialist dictator.

Amazingly enough, Hugo Chavez is giving us a gift.  Allow me to explain.

World leaders are gathered today in Berlin, celebrating the 20th anniversary of the fall of the Iron Curtain.  What would have been the greatest armed conflict in the history of the world was successfully avoided… peace prevailed.

Meanwhile, thousands of miles away, Hugo Chavez is stoking the flames of war in his region.

Notwithstanding the collapse of European communism, Hugo steers a rather unwieldly ship of socialism in Venezuela.  Hugo calls his brand “Bolivarian Socialism,” named after the famous Andean political leader Simon Bolivar who had served as President in Colombia, Venezuela, Bolivia, and Peru. 

Ironically, despite the moniker bestowed by Chavez, Bolivar was an avowed proponent of the free market who admired Thomas Jefferson and traveled with Adam Smith’s Wealth of Nations.  Hugo’s policies are a far cry from Bolivar… but then again, the US government does not exactly promote the ideals of the Constitution either.

Now Chavez and the United States find themselves pitted against each other once again, this time through Colombia as an intermediary.  Colombia and the US recently signed a military agreement that allows the US to do what it does best– station American military troops in a foreign land.

In this case, the agreement calls for US troop deployments to seven military bases across Colombia.  Their mission will focus on counter narcotic operations and fighting the paramilitary insurgency. 

Realistically, though, the US is clutching on to its presence in the region.  American forces have already been kicked out of Ecuador, and since the withdrawal from Panama in 2000, the closest military installation with US troops is Soto Cano Air Base in Honduras… and as you are undoubtedly aware, Honduras isn’t exactly a beacon of stability these days.

Furthermore, to say that the US military is stretched thin is definitely the understatement of the day.  Sending even more troops overseas to fight yet another noun (this time it’s the war on ‘drugs’) may end up being the straw that broke the camel’s back.

Fortunately, we have little to fear from Hugo Chavez, at least in terms of conventional warfare.  Over the weekend, while Sarkozy and Merkel glad handed with former resistance leaders like Lech Walesa in Berlin, Chavez was addressing his troops.

“Let’s not waste a day on our main aim: to prepare for war and to help the people prepare for war, because it is everyone’s responsibility,” he said.  A few days before, he sent 15,000 troops to the  border with Colombia, citing fears that the US would use its new presence in the region to attack Venezuela.

The fact remains, however, the Venezuela unequivocally does not want to start an armed conflict.

Colombian forces are battle hardened veterans; they have fought for years against guerilla and paramilitary groups, and their combat experience is among the most extensive in the region.

Not to mention, the Colombian military is well-funded thanks to its alliance with the United States… and military funding means top of the line weaponry.

Venezuela forces, by comparison, are poorly trained, dreadfully equipped, and inexperienced.

Sure, a similar matchup took place in the 1980s between Iraq (funded and equipped by the United States), and Iran.  The Iranians had very little equipment or training– their chief combat tactic was to hurl waves of warm bodies at oncoming Iraqi tanks… and Iran had  a lot of bodies at the time.

The tactic worked.  Millions died, and the long battle of attrition between Iraq and Iran ended in a stalemate. 

Venezuelans, however, do not have the Iranian’s overzealous religious resolve, nor do they particularly care for Chavez and his brand of socialism.

Consequently, if Chavez initiated an attack, it would look like amateur night on the Colombian border. 

Chavez knows this, so all of his rhetoric is simply bombastic statement that won’t be backed up with action– unless something truly catastrophic and unexpected happens, like a clear act of war from the Colombians or the United States. This is highly unlikely.

In the meantime, Chavez will continue his peacock strutting and scare the world into thinking that war is imminent.  I think he’s actually giving us a gift, though.

In 2006, Israel and Lebanon held a brief war… a few people came. Markets got jittery, and both the Israeli shekel and Lebanese pound had a brief plunge.  They returned to normal levels quite literally within days.

In the last few weeks since the Colombia/Venezuela saga began, I’ve watched the Colombian peso sink by 8% against the US dollar.  Part of this has been a dollar rally, but most of the swing has been because markets are scared of war with Venezuela.

I’m convinced the fears are unfounded.

Chavez is shrewd and at least reasonably intelligent to have gotten this far. Venezuela is beset by major problems– crumbling oil infrastructure, water scarcity, frequent power outages, etc. War is a great way to distract and unify the masses, but walking in to an absolutely certain military defeat is a fool’s bet.

As such, I think that if the Colombian peso continues to fall, especially past 2,050, it should make a reasonable short-term investment.