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How are Venezuela and Cuba positioned now? · UBS Trending

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  Venezuela looks
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  today like a
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  very different country than it was just a few months ago,
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  with economic, financial and political transformation underway.
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  Is this the dawn of a new era?
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  And here's a little tease.
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  Could Cuba be next?
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  We're going to find out all of that a lot more right now on
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  UBS Trending.
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  Hi, everyone, and welcome to the UBS Trending.
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  I'm Anthony Pastore.
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  Always a pleasure to be with you today and for today and always.
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  Alejo Czerwonko is back in the studio with me of course.
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  He is
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  the CIO for Emerging Markets
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  Americas here at UBS, and always comes with me
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  once a month to talk about what's going on
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  in the emerging market space.
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  Today happens to be Venezuela as the topic country.
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  Anyway, Alejo, good to have you here.
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  Thank you so much for having me. Yeah.
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  So obviously it's still early days.
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  You know,
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  we know about what happened in Venezuela when Nicolas Maduro
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  and his regime were taken out by military force
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  by the United States
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  since then, and it's only a few months later.
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  So obviously, sometimes these things take years to unwind
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  and get back
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  to whatever normal might look like for the country of Venezuela.
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  But what does it look like
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  today as you look at what's happening there
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  compared to what it was in January?
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  First off, Anthony, let me just say that we live in a world
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  in which reality is a lot more interesting than fiction.
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  What do we need Netflix for?
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  If on January 3rd, we've got a military operation
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  that surgically removes Nicolas Maduro from Caracas,
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  flies him out to Brooklyn, New York, to face prosecution,
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  and we got a new president in place
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  in Venezuela, Delcy Rodriguez.
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  The question is, have things changed?
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  And I think the answer is yes.
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  It depends on what area you're looking at.
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  If you focus on the economic picture, we are indeed
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  moving away from, you know, very state led, hyper controlled
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  to more open private participation
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  in the economy, specifically the oil
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  and gas sector, which is the most important one for Venezuela.
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  There's a new hydrocarbon law.
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  Private participation in the sector
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  is not it's not more encouraged.
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  Foreign investment in the sector is now more encouraged.
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  So things are changing fast.
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  In addition,
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  when it comes to politics, we don't yet have a democracy.
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  There haven't been new elections that will take time.
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  But the pressure on the opposition is easing.
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  There's a bit more political debate and the hope is that
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  over time Venezuela will move towards a new political system.
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  Right.
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  And the hope, of course, is on the world stage.
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  And I'm sure for the Venezuelan people
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  is that that reform sticks around and then changes
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  the nature of how the government is run, etc., etc.
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  get more democratic votes in place, etc..
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  Like you said, it does take a long time to unwind.
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  Years of socialists, you know, socialism
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  and oppression that have had plagued that country for so long.
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  Actually, Anthony, we're talking about 27 years
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  of Chavez, more moderate, some populist,
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  some write
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  a very poor form of government for the Venezuelan people.
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  Right.
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  1999 Chavez came into power.
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  Venezuela used to be a country in the 70s,
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  a rating by credit rating agencies.
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  It thriving economy right over time.
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  First gradually, then suddenly we had a worsening
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  of the economic situation
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  that eventually ended up in hyperinflation, economic contraction,
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  exodus of millions of people,
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  and a default of Venezuelan sovereign debt.
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  Right.
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  And the truth is,
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  their sovereign debt
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  has now been a default, like you
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  said, for over it's almost a decade or so, right?
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  Nine years or so.
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  But the country has kicked off a process to restructure
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  some of that debt.
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  How does that work?
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  Very recent.
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  Anthony, we're talking about news from a week ago.
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  After nine years of sovereign debt
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  in Venezuela being in default, that is if you're a bondholder
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  you're not getting paid nine years of getting zero.
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  Now we're opening the door for a debt exchange.
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  Turning all that get knew that
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  there's going to be a haircut involved.
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  There's going to be a lot of negotiation
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  involved between the country and its creditors.
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  What I can tell you, Anthony, is it's excellent news
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  that we're kicking this off,
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  but you should be aware
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  that we're probably facing the most complicated
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  sovereign debt restructuring in history, why?
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  We have so many different creditors.
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  Private sector
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  creditors like bondholders from Wall Street, quote unquote,
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  to China and Russia.
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  And we have so many different incentives
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  and trade offs and interests in this group of creditors
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  that getting them to agree on anything is going to be difficult.
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  You should measure the resolution to this debt saga in
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  not months, but maybe quarters or maybe even potentially years.
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  Right.
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  And the risks in place
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  obviously there's political reversals that could,
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  you know, that could cause more of a risk scenario
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  like you said legal hurdles, credit coordination.
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  A lot has to go right for this to work.
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  Well. Yes.
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  To resolve such complicated situation it will take hard work.
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  Consistency negotiation.
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  I just want to manage expectations that Venezuela
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  is not going to be able to restructure its debt by midyear.
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  Right.
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  I mean,
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  obviously it's years and years that they have to kind of go back
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  and go to those creditors
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  who have been holding on to this debt for such a long time.
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  I do want to ask because, you know, it seems like 20,
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  26 is the story of oil.
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  You know, between what's happening
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  with the Strait of Hormuz or what's not happening.
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  A lot of times we're sort of still stuck in this,
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  the resolution period of will they won't they?
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  And obviously, this Venezuela story that you said,
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  they're the largest known oil reserves for any one country.
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  So there's a lot of oil that's sitting sitting there.
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  The U.S.
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  intervention comes
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  at a time of sort of deepening interest in Latin America overall.
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  Do you think that that will continue?
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  Yes, I think so.
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  For starters, Latin America is getting more
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  interest resources from the US
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  than at any point in the last 25 plus years.
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  Marco Rubio, U.S. Secretary of State.
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  First international trip of this administration to Latin America
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  over the last 18 months.
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  The Trump administration has gotten involved directly in
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  Panamanian affairs, Brazilian affairs,
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  Argentine, Salvadorian, and of course, Venezuelan affairs.
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  They even made it explicit in national security documents.
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  We now have the Monroe Doctrine 2.0.
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  It stipulates that Latin America is of strategic importance.
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  I had the opportunity to be in Washington, DC just a couple
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  weeks ago.
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  I, came across Jake Sullivan
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  that used to be the national security adviser under Biden.
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  And I asked him, if you ever come to power again,
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  will you keep this doctrine or will you toss it?
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  And he goes,
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  we keep it because we're interested in controlled migration.
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  We're interested in, supply chains that are more secure.
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  So I think it goes beyond the Trump administration.
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  And the interest and focus on Latin America will likely persist.
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  Right. Wow. It's fascinating.
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  It's amazing
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  that you were able to grab a conversation with him as well
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  to get his perspective,
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  because it is obviously somebody who has already sat
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  in a seat of political power to get his opinion very valuable.
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  Yeah, I wanted to get a sense of what
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  both sides of the aisle were praying about. Right, exactly.
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  Now, what about what about now?
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  It's in the beginning that could Cuba be next?
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  But that doesn't come out of thin air.
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  There's been sort of some recent
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  developments on the island of Cuba.
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  What do we know?
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  And why is it that we potentially think that it could be
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  the next Venezuela like scenario?
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  Information is limited, Anthony.
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  But I think by now there's been enough reported
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  by the media in terms of a tightening embargo on the island.
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  Additional steps taken by the US
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  administration to put pressure
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  on the existing Cuban administration.
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  Just a couple of days ago.
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  So Raul Castro, one of the longtime leaders of Cuba, being,
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  you know, persecuted and in,
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  in the US for a number of charges.
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  And when I was in D.C.
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  again, many people were talking about Might Cuba be next?
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  It seems to be a priority of the current U.S.
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  administration.
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  And, the growing pressure
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  on the island seems to suggest that regime change
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  probability is likely at its highest likelihood, in decades.
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  Right.
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  So developing story,
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  but I wouldn't be surprised if something happened there.
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  Let me say, Anthony, we do have a publication.
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  Cuba the day after tomorrow, trying to think, you know,
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  what might
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  the Cuban economy look like
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  if we do see a political regime change? And what do you think?
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  What lessons do you think Cuba can take from Venezuela,
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  as they're maybe
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  at the precipice of some big changes
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  that are going to be potentially happening there?
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  Well, I think the U.S.
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  is very clear in terms of, pointing to the Venezuela example.
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  In terms of do's and don'ts, cooperate.
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  And you can be a partner as well.
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  Rodriguez in Venezuela seems to be,
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  you know, building himself, building herself.
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  Yeah.
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  Do not cooperate.
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  And you'll end up in in Brooklyn, New York. Right.
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  So I think that's the that's the reality.
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  That's, That sounds about right.
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  Alejo, thank you very much.
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  Really, it's a lot, a lot to consider.
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  You know,
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  as we said,
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  it only happened from January, and we're sitting here in May.
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  And so, you know, so many developments in such a short time,
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  but a lot more that could potentially happen,
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  over the next few months and years.
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  So good to get the first take from you on where we are today.
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  We're living through history.
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  We every day.
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  It's it's amazing every day. It's crazy.
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  Our kids are going to ask us questions about,
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  remember when you lived through all these like which was 75.
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  Exactly.
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  Leo. Thank you. Great to see you.
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  And thank you all for joining us.
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  Lots more information from Alejo and the Chief Investment Office
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  on our insights website at ubs.com/views.
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  Plus, you can take a look at all of the content
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  that UBS is posting on various
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  social media platforms like LinkedIn and Facebook.
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  Plus, UBS Studios has its own dedicated Instagram channel.
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  Follow us at @UBSTrending
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  for content that you're not going to find anywhere else.
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  And as always,
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  if you have any questions about what
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  Alejo and I spoke about today
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  or how it might impact your portfolio,
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  make sure you're continuing this conversation
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  with your financial advisor.
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  Until next time, I'm Anthony Pastore.
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  We wish you a great rest of your day.
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  And remember to keep your eyes on what's trending.
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  We'll see you soon, everybody. Thanks.