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There's no easy way to leave Venezuela with Hugo Chavez in charge, as foreign investors are discovering. Banco Santander found itself in a lose-lose situation in 2008 when it went before the banking authority seeking permission to sell Banco de Venezuela – the country's third-largest bank – to a group of local investors....

There's no easy way to leave Venezuela with Hugo Chavez in charge, as foreign investors are discovering. Banco Santander found itself in a lose-lose situation in 2008 when it went before the banking authority seeking permission to sell Banco de Venezuela – the country's third-largest bank – to a group of local investors. Alerted to the Spanish bank's plans, the president announced that the government itself would be taking control of Banco de Venezuela. But the government proceeded to hold off on committing to the deal, and all the while Banco de Venezuela's value plummeted on speculation of its inevitable seizure. By the time the government finally came to the table over 10 months later, Santander's asking price was effectively cut in half.

With Banco de Venezuela, Chavez adds the banking sector to his list of industries the government now has direct participation in. Last year the cement industry joined the ranks as well, with Cemex, Lafarge and Holcim forcibly brought to the market. Still, the collapse of global oil prices has effectively cut the Chavez administration's ability to meet its obligations to pay for seized companies, with some $12 billion owed to previous owners.

The government's illiquidity has also had an effect on the few infrastructure projects moving forward in Venezuela. Last March, Brazilian developer Odebrecht opted to slow work on its expansion of the Caracas metro system when faced with outstanding bills. With companies facing not only nationalisation but defaults on payments as well, Venezuela's financial lawyers foresee an increase in disputes between clients and the government. "Until last year we were not taking any companies to arbitration in Venezuela," one leading lawyer says. "This year things may be changing."

The prospect is grim for lawyers in Venezuela – lots of difficult negotiations with the government, none of the so-called sexy work of M&A and financing transactions with big name clients. Still, lawyers believe there will finally be movement in the markets when the global recession lifts, particularly in the project finance sector. Last July, Spanish developer Iberdrola was awarded a $2 billion concession to build a 1GW combined cycle gas power plant in Venezuela, which will be one of the largest power plants in Latin America when it is completed in an estimated three years.

While private and institutional lending is closed for the time being, lawyers say that the Venezuelan government is negotiating joint infrastructure development ventures with the Bric (Brazil, Russia, India and China) governments. Attorneys say these projects will undoubtedly require some form of private finance and service contracts.