Global Insight Perspective | |
Significance | The Caracas Stock Exchange tumbled in the wake of President Hugo Chávez's announcement of plans to nationalise some sectors of the economy, while the U.S. administration and the Venezuelan business community expressed major concerns over the legal future of those sectors. |
Implications | Along with ambitions to reduce the autonomy of the Central Bank and the confirmation of forthcoming Carta Magna amendments, the business environment has suffered yet another blow in Chávez-led Venezuela, with uncertainty levels spiking. |
Outlook | The "how?" and "when?" of this project to increase state control in telecoms and electricity are yet to be fully answered. Recently appointed Finance Minister Rodrigo Cabezas has suggested Chávez will provide further details today, during his swearing-in ceremony. |
Markets Plunge
President Hugo Chávez's announcements of the renationalisation of the telecoms and power sectors have sent a shockwave through the Venezuelan stock exchange (Bolsa de Valores de Caracas, BVC) and others across the region (see Venezuela: 9 January 2006: Venezuelan President Calls for Further Nationalisation). The BVC index fell by an impressive 18.66%. Firms to be targeted by the looming change in legal status saw their shares particularly affected by the news. On the BVC, trading of CANTV (telecoms provider) and Electricidad de Caracas (EDC, electricity company) was temporarily suspended. In New York, CANTV's share price dropped by 30.6%.
Opposition and Venezuelan Investment Community Voice Concerns
Venezuela's most powerful business representation group, Fedecamaras, stepped in to express its concerns. Its head, José Luis Betancourt predicted a deterioration of telecommunications services should the renationalisation proceed. Betancourt recalled the days when CANTV was state-owned and any procedures were plagued by overwhelming bureaucracy, red tape and delays. Joining national figures condemning Chávez's ambitions, opposition leader Manuel Rosales slammed the president's ruling style as despotic. At a press conference, Rosales warned of the country moving closer towards a Marxist state, and finished by calling on Venezuelans to protest against the measures.
Washington Preoccupied
With CANTV partly owned by U.S. company Verizon, and EDC under American AES control, the U.S. government in Washington was expected to defend its interests. The presidential administration's spokesman at the White House, Tony Snow, highlighted that the government was "strongly" worried about Chávez's plan. Along the same lines as Betancourt, Snow recalled that nationalisation had in the past demonstrated its limitations and "failed". In a comment set to ignite furious rhetoric from President Chávez today, Snow concluded that "this is an unhappy day for them [the Venezuelan public]".
Diplomatic Quarrel Continues
Chávez's 2007-2013 economic vision for the country was not the only source of international/regional condemnation. Brazil, Chile, Honduras, Guatemala, Costa Rica, Paraguay, Canada and the United States all came out in the defence of the secretary-general of the Organization of American States (OAS) José Miguel Insulza. Insulza came under fire from Chávez for his siding with opposition channel RCTV, whose broadcasting licence will not be renewed by the government (see Venezuela: 9 January 2007: Venezuelan President Calls for Further Nationalisation) and Venezuela: 8 January 2007: OAS Head and Venezuelan Government in TV Concession Row). The Venezuelan president had repeatedly referred to Insulza as an idiot, someone who has become a pawn of the United States, and had demanded his resignation. The disrespectful comment met with widespread condemnation in the OAS Permanent Council session yesterday. No OAS member expressed solidarity with Venezuela on the issue. Venezuelan Foreign Affairs Minister Nicolas Maduro declared yesterday that Insulza's comments were just yet another facet of a global campaign against the Venezuelan administration. Maduro took Chávez's stance of wanting Insulza either to formally retract his words or resign for his interference. As for the OAS chief, he has adopted a more cautious approach, refusing to reply to Chávez's insults.
Outlook and Implications
Confrontation Returns
The radical tone taken by Chávez on the OAS chief and the surprise unilateral call to renationalise fully privatised sectors are two simultaneous instances pointing to a more uncompromising and confrontational approach from the re-elected Venezuelan president. Given the extent of national support for his regime and socialist Revolution, Chávez's need to accommodate opponents' views has further dwindled (see Venezuela: Election 2006: 4 December 2006: Firebrand Leftist President Re-Elected in Venezuela). As is often the case, however, his words may be accompanied by relatively softer measures in practice. The 2001 Land Law, for example, was introduced with aggressive speeches against large estates, or "latifundios", and high-profile seizures. However, in practice the authorities undertook a more conciliatory approach, negotiating with some land owners over the relinquishment of and compensation for their lands. Nevertheless, riding high on unprecedented levels of popularity and support, Chávez is freer than ever to continue the social and economic transformation of the country in line with his socialist principles, which is bound to clash with private-sector interests. The controlling nature of the regime has attacked, quite dramatically, some fundamental tenets such as the autonomy of the Central Bank from political interference.
How Much Nationalisation?
The fact that Chávez has set up a plan to retake control of key sectors of the economy is by no means an unexpected development in Chávez-led Venezuela. The announcement's lack of detail, however, and the use of the much feared "N-word", nationalisation, were always likely to shake investor confidence. The firebrand socialist president has yet to provide further details on the nature of such nationalisation. It could translate into undeniably greater control while falling short of ousting private investment altogether. In that sense Chávez is applying the resource-nationalism logic that already exists in the energy industry to other sectors of the economy. The telecoms and electricity sectors could join the ranks of state-dominated industries such as energy and possibly mining. According to Finance Minister Rodrigo Cabezas, the president is expected to give further details on the pace and form of the announced renationalisation today, after his investiture ceremony. The rhetoric may be harsher than the actual changes in the legal framework of the sectors. Nonetheless, the extent of the nationalisation is an unwelcome development for the private sector in Venezuela. Its confidence and influence have suffered a series of blows since Chávez came to power in 1999.