'We're in a bubble - and it is showing cracks'

May 29, 2009 5:07 AM

Leading in-house and private practice lawyers in Venezuela acknowledged in meetings on Monday that while companies are still making money in the country, increasingly tough exchange control systems mean the future is looking even more precarious.

The dual exchange system, with the bolivar pegged at 2.15 to the dollar officially but the unofficial exchange rate at around 6 bolivars to the dollar, already makes costs hard to manage. But the official exchange agency is clamping down on the amount of dollars companies can access, meaning the situation is increasingly volatile.
 
One general counsel agreed that while companies, often with healthy bottom lines, have been coping with the seemingly arbitrary nature of the process which decides who gets dollars and when, if it becomes more difficult to get cash out of the country large problems could appear - particularly if there comes a point where dividends to US-based shareholders or investors can't be paid. "We're in a bubble - and it is showing cracks," he said.
 
The local meeting of the Latin American Corporate Counsel Association noted that while doing business in Venezuela was very challenging from the perspective of the private company, on the positive side that meant their positions had become among the most important in the company. "I used to have to fight with the business team to include me in decisions - now, they want me involved in everything; they don't move without calling me first," said one general counsel.
 
Senior partners at the country's leading law firms agreed that in the major matters their firms were involved in, the same was true - in nationalisations, for example, the work is interesting, challenging and well-paid. They are concerned, however, that this is not a sustainable business model.
 
"While we are seeing a good flow of work in the short term, our client base is getting smaller as some companies leave the country," one said. Another noted that a problem was 'associate retention' - persuading the brightest stars that Venezuela was still the right country in which to build their careers.

(Source: LatinLawyer Online)

May 27, 2009