Investors scared by President Hugo Chavez's nationalization plans rushed to sell off Venezuelan stocks Tuesday, while U.S. officials and financial analysts warned that increasing government control in the power, telecom and oil sectors is a mistake.
Chavez, who begins another six-year term Wednesday 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's plans to impose state control over oil upgrading projects in the Orinoco, now controlled by companies like 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," U.S. Energy Secretary Samuel Bodman said Tuesday, expressing concerns that 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% of their value since Chavez's announcement. On Tuesday alone, CANTV lost 285.7 million US dollars in market capitalization. Shares in Electricidad de Caracas, owned by Arlington, Virginia-based AES Corp., fell by 20% Tuesday morning before the Caracas stock exchange suspended trading. And the U.S. dollar hit a new high of 4.000 Venezuelan Bolivar on the black market Tuesday, making a joke of the official exchange rate of 2,150 Bolivar. Government seizures of companies don't appear to be likely: With Venezuelan oil selling above 50 US dollars a barrel, Chavez's government has plenty of cash to buy out private-sector stakes in key companies. 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 Chavez's government. He's already raised taxes and royalties and brought most oil operations under state-controlled joint ventures. Brazil's state-owned oil company said Tuesday that Chavez's announcement will not affect its plans to invest in Venezuela. "(This announcement) should not surprise anyone. ... He has been saying he would do this for a long time," Petrobras Chief Executive Sergio Gabrielli told Brazil's state news agency. Petrobras is not involved in the Orinoco upgrading projects but has other oil and gas interests in the country. 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.