The ground beneath Caracas did not just tremble; it shattered. Yesterday’s earthquake, registering 7.3 on the Richter scale, has been declared by government officials as the hardest moment in modern Venezuelan history. As a Chief Financial Editor with two decades in the City, I view this catastrophe through the lens of the bottom line. And the bottom line, I am afraid, is devastating.
Venezuela was already bleeding capital before the earth moved. Hyperinflation had turned the bolívar into confetti. Now, with infrastructure in rubble, the fiscal wound is mortal. The initial estimate of 10,000 dead is a human tragedy. But for markets, the death toll includes any remaining investor confidence. Capital flight from Venezuela was a torrent; now it is a vacuum.
The government’s response, pledging unlimited reconstruction funds, smells of fiscal incontinence. Printing more bolívars to rebuild a city that is already a monument to economic mismanagement will only accelerate the currency’s death spiral. Investors should watch the parallel market rate: if it breaks 10 million bolívars to the dollar, the game is up.
Gilt yields in the UK remain unmoved, but the disaster will tighten global oil supply. Venezuela’s crude output, already halved since 2015, will now fall off a cliff. That is a bullish signal for Brent crude. But for the Venezuelan people, it means empty coffers and empty stomachs.
Central bank policy? Forget it. The Venezuelan central bank is a zombie institution, staggering under the weight of its own irrelevance. The earthquake has simply pushed it into the grave. The only question is whether the IMF will step in with a bailout. Given the regime’s track record, I would not bet on it.
Market volatility is the new normal for Venezuela. But this is not a trading opportunity. This is a humanitarian disaster compounded by a decade of bad fiscal decisions. The best you can do as an investor is to stay away. As for the Venezuelan people, they need more than printed money. They need a miracle.
