CARACAS, Venezuela — Investors spooked by President Hugo Chavez’s nationalization plans rushed to sell off Venezuelan stocks yesterday, while U.S. officials and financial analysts warned that increasing government control in the power, telecommunications and oil sectors is a mistake.
Mr. Chavez, who begins another six-year term today after a sweeping election victory, announced plans Monday to nationalize Venezuela’s largest telecommunications company, electrical companies and four lucrative oil projects now run by foreign companies in the Orinoco River basin. He also called for a constitutional amendment to strip the autonomy of the Central Bank.
“Chavez has singled out ‘strategic sectors’ for now, but what could come next?” asked Pedro Palma, an economist at Venezuela’s IESA business school. Mr. Chavez, he said, has created “a climate of great uncertainty.”
Mr. Chavez’s plans to impose state control over oil upgrading projects in the Orinoco, now controlled by foreign companies including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips Co., also prompted worries in the U.S., Venezuela’s largest oil customer.
“I think the goal here is to enforce the sanctity of contracts,” Energy Secretary Samuel W. Bodman said yesterday, expressing concerns that Mr. Chavez could “violate that principle.”
White House press secretary Tony Snow also weighed in, saying: “Nationalization has a long and inglorious history of failure around the world. We support the Venezuelan people and think this is an unhappy day for them.”
Investors dumped shares in C.A. Nacional Telefonos de Venezuela, or CANTV, whose American Depository Receipts lost nearly 42 percent of their value since Mr. Chavez’s announcement. Yesterday alone, CANTV lost $285.7 million in market capitalization.
Shares in Electricidad de Caracas, owned by Arlington, Va.-based AES Corp., fell 20 percent yesterday morning before the Caracas stock exchange suspended trading. And the dollar hit a new high of 4,000 Venezuelan bolivars on the black market yesterday, making a joke of the official exchange rate of 2,150 bolivars.
Government seizures of companies don’t appear to be likely: With Venezuelan oil selling above $50 a barrel, Mr. Chavez’s government has plenty of cash to buy out private-sector stakes in key companies.
Mr. Chavez also said he would ask Congress — now completely controlled by his supporters — to grant him special powers to enact “revolutionary laws” to carry out the nationalizations and other changes.
Oil companies are accustomed to operating in politically unstable regions and have so far taken a long-term perspective on abrupt changes by Mr. Chavez’s government. He has already raised taxes and royalties and brought most oil operations under state-controlled joint ventures.
But other sectors are likely to be spooked, and that won’t help diversify an economy precariously dependent on oil, Mr. Palma said.
CANTV’s nationalization also raises doubts about an April agreement by Verizon Communications Inc. to sell its 28.5 percent stake in CANTV to a joint venture of America Movil and Telefonos de Mexico SA controlled by Mexican billionaire Carlos Slim. The sale had been awaiting Venezuelan government regulatory approval.
Mr. Chavez has increased state control over many areas of the economy since coming to power in 1999. The foreign exchange controls he imposed in 2003 make it difficult to repatriate earnings and acquire dollars for international payments, and his government seized ranchlands and company assets deemed idle, moves that scared off many long-term investors.
State-run companies have a poor record in Venezuela. Areas now serviced by government-run electricity companies suffer frequent blackouts, and before CANTV was privatized, companies had to employ dozens of operators to work the phones because getting a connection was so difficult.
“The state companies have shown that they’re hopeless, they don’t know how to manage, they’re totally incapable of directing any type of company,” said Luis Salazar, 56, an economist walking in downtown Caracas.
The privatized CANTV has also provided another key benefit for Venezuelans — one of the few ways to get around currency exchange controls. Investors could buy its shares in Venezuelan bolivars and sell them on the New York Stock Exchange to acquire dollars. A government takeover of CANTV would close down this option for preserving wealth in an economy where inflation has been running at 17 percent.
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