May 21, 2007

The Return of the Idiot

Filed under: South America, Venezuela — rdrutherford @ 11:59 pm

The Return of the Idiot
Throughout the 20th century, Latin America’s populist leaders waved Marxist banners, railed against foreign imperialists, and promised to deliver their people from poverty. One after another, their ideologically driven policies proved to be sluggish and shortsighted. Their failures led to a temporary retreat of the strongman. But now, a new generation of self-styled revolutionaries is trying to revive the misguided methods of their predecessors.
Ten years ago, Colombian writer Plinio Apuleyo Mendoza, Cuban writer Carlos Alberto Montaner, and I wrote Guide to the Perfect Latin American Idiot, a book criticizing opinion and political leaders who clung to ill-conceived political myths despite evidence to the contrary. The “Idiot” species, we suggested, bore responsibility for Latin America’s underdevelopment. Its beliefs—revolution, economic nationalism, hatred of the United States, faith in the government as an agent of social justice, a passion for strongman rule over the rule of law—derived, in our opinion, from an inferiority complex. In the late 1990s, it seemed as if the Idiot were finally retreating. But the retreat was short lived. Today, the species is back in force in the form of populist heads of state who are reenacting the failed policies of the past, opinion leaders from around the world who are lending new credence to them, and supporters who are giving new life to ideas that seemed extinct.

Because of the inexorable passing of time, today’s young Latin American Idiots prefer Shakira’s pop ballads to Pérez Prado’s mambos and no longer sing leftist anthems like “The Internationale” or “Until Always Comandante.” But they are still descendants of rural migrants, middle class, and deeply resentful of the frivolous lives of the wealthy displayed in the glossy magazines they discreetly leaf through on street corners. State-run universities provide them with a class-based view of society that argues that wealth is something that needs to be retaken from those who have stolen it. For these young Idiots, Latin America’s condition is the result of Spanish and Portuguese colonialism, followed by U.S. imperialism. These basic beliefs provide a safety valve for their grievances against a society that offers scant opportunity for social mobility. Freud might say they have deficient egos that are unable to mediate between their instincts and their idea of morality. Instead, they suppress the notion that predation and vindictiveness are wrong and rationalize their aggressiveness with elementary notions of Marxism.

Latin American Idiots have traditionally identified themselves with caudillos, those larger-than-life authoritarian figures who have dominated the region’s politics, ranting against foreign influence and republican institutions. Two leaders in particular inspire today’s Idiot: President Hugo Chávez of Venezuela and President Evo Morales of Bolivia. Chávez is seen as the perfect successor to Cuba’s Fidel Castro (whom the Idiot also admires): He came to power through the ballot box, which exonerates him from the need to justify armed struggle, and he has abundant oil, which means he can put his money where his mouth is when it comes to championing social causes. The Idiot also credits Chávez with the most progressive policy of all—putting the military, that paradigm of oligarchic rule, to work on social programs.

For his part, Bolivia’s Evo Morales has indigenista appeal. In the eyes of the Idiot, the former coca farmer is the reincarnation of Túpac Katari, an 18th-century Aymara rebel who, before his execution by Spanish colonial authorities, vowed, “I shall return and I shall be millions.” They believe Morales when he professes to speak for the indigenous masses, from southern Mexico to the Andes, who seek redress of the exploitation inflicted on them by 300 years of colonial rule and 200 more of oligarchic republican rule.

The Idiot’s worldview, in turn, finds an echo among distinguished intellectuals in Europe and the United States. These pontificators assuage their troubled consciences by espousing exotic causes in developing nations. Their opinions attract fans among First-World youngsters for whom globalization phobia provides the perfect opportunity to find spiritual satisfaction in the populist jeremiad of the Latin American Idiot against the wicked West.

There’s nothing original about First-World intellectuals’ projecting their utopias onto Latin America. Christopher Columbus stumbled on the shores of the Americas at a time when Renaissance utopian ideas were in vogue; from the very beginning, conquistadors described the lands as nothing short of paradisiacal. The myth of the Good Savage—the idea that the natives of the New World embodied a pristine goodness untarnished by the evils of civilization—impregnated the European mind. The tendency to use the Americas as an escape valve for frustration with the insufferable comfort and cornucopia of Western civilization continued for centuries. By the 1960s and 70s, when Latin America was riddled with Marxist terrorist organizations, these violent groups enjoyed massive support in Europe and the United States among people who never would have accepted Castro-style totalitarian rule at home.

The current revival of the Latin American Idiot has precipitated the return of his counterparts: the patronizing American and European Idiots. Once again, important academics and writers are projecting their idealism, guilty consciences, or grievances against their own societies onto the Latin American scene, lending their names to nefarious populist causes. Nobel Prizewinners, including British playwright Harold Pinter, Portuguese novelist José Saramago, and American economist Joseph Stiglitz; American linguists such as Noam Chomsky and sociologists like James Petras; European journalists like Ignacio Ramonet and some foreign correspondents for outlets such as Le Nouvel Observateur in France, Die Zeit in Germany, and the Washington Post in the United States, are once again propagating absurdities that shape the opinions of millions of readers and sanctify the Latin American Idiot. This intellectual lapse would be quite innocuous if it didn’t have consequences. But, to the extent that it legitimizes the type of government that is actually at the heart of Latin America’s political and economic underdevelopment, it constitutes a form of intellectual treason.


The most notable example today of the symbiosis between certain Western intellectuals and Latin American caudillos is the love affair between American and European Idiots and Hugo Chávez. The Venezuelan leader, despite his nationalist tendencies, has no qualms about citing foreigners in his speeches in order to strengthen his positions. Just witness Chávez’s speech at the United Nations last September in which he praised Chomsky’s Hegemony or Survival: America’s Quest for Global Dominance.

Likewise, in presentations at the Massachusetts Institute of Technology, Chomsky has pointed to Venezuela as an example for the developing world, touting social policies that have achieved success in education and medical assistance and rescued the dignity of Venezuelans. He has also expressed admiration for the fact that “Venezuela successfully challenged the United States, and this country doesn’t like challenges, much less so if they are successful.”

But in actuality, Venezuela’s social programs have, with help from the Cuban intelligence services, become vehicles for political regimentation and social dependence on the government. Furthermore, their effectiveness is suspect. The Centro de Documentación y Análisis Social de la Federación Venezolana de Maestros, a teachers’ union think tank, reported in 2006 that 80 percent of Venezuela’s households have difficulty covering the cost of food—the same proportion as when Chávez came to power in 1999, and when the price of oil was one third the price it is today. As for the dignity of the people, the real story is that there have been 10,000 homicides per year in Venezuela since Chávez became president, giving the country the highest per-capita murder rate in the world.

Another nation that certain American opinion leaders have a soft spot for is Cuba. In 2003, Fidel Castro’s regime executed three young refugees for hijacking a boat and trying to escape from the island. Castro also sent 75 democratic activists to prison for lending banned books. In response, James Petras, a longtime sociology professor at the State University of New York’s Binghamton University, wrote an article titled “The Responsibility of the Intellectuals: Cuba, the U.S. and Human Rights.” In his essay, which was reprinted by various left-wing publications around the world, he defended Havana by arguing that the victims had been in the service of the United States government.

Noted Castro sympathizer Ignacio Ramonet, the editor of Le Monde Diplomatique, a French newspaper that champions every unsavory cause coming out of the Third World, maintains that globalization has made Latin America poorer in recent years. In fact, poverty has been modestly reduced in the past five years. Globalization has given Latin American governments so much revenue from the sale of commodities and from the taxes paid by foreign investors that they have handed out cash subsidies to the poor—hardly a solution to poverty in the long term.

Two decades out of date, Harold Pinter delivered a flabbergasting account of the Nicaraguan Sandinista government in his 2005 Nobel lecture. Perhaps thinking that a vindicatory look at the populists of the past might help the populists of today, he said that the Sandinistas had “set out to establish a stable, decent, pluralistic society,” and that there was “no record of torture” or of “systematic or official military brutality” under Daniel Ortega’s government in the 1980s. One wonders, then, why the Sandinistas were thrown out of power by the people of Nicaragua in the 1990 elections. Or why the voters kept them out of power for nearly two decades—until Ortega became a political transvestite, declaring himself a supporter of the market economy. As for the denial of Sandinista atrocities, Pinter would do well to remember the 1981 massacre of Miskito Indians on Nicaragua’s Atlantic coast. Under the guise of a literacy campaign, the Sandinistas, with the help of their Cuban cadres, tried to indoctrinate the Miskitos with Marxist ideology. But the independent-minded Indians refused to accept Sandinista control. Accusing them of supporting opposition groups based in Honduras, Ortega’s men killed as many as 50 Miskitos, imprisoned hundreds, and forcibly relocated many more. The Nobel laureate should also remember that his hero Ortega became a capitalist millionaire thanks to the distribution of government assets and confiscated property that the Sandinista leaders split among themselves after losing the 1990 elections.

The current enthusiasm with Latin American populism extends to correspondents for major news outlets. Take, for instance, some stories filed by the Washington Post’s Juan Forero. He is more balanced and informed than the luminaries mentioned above, but, from time to time, he betrays an uncanny enthusiasm for populism of the kind that is sweeping the region. In a recent article on Chávez’s foreign largesse, he and coauthor Peter S. Goodman paint a generally positive picture of the way in which Chávez is helping some countries rid themselves of the strictures imposed by U.S.-backed multilateral agencies by providing them with enough cash to pay off their debts. Supporters of this policy were quoted favorably and no mention was made of the fact that Venezuela’s oil money belongs to the Venezuelan people, not to foreign governments or entities allied with Chávez, or that those subsidies have political strings attached. Note Argentine President Néstor Kirchner’s attack against the United States and his praise of Chávez during a recent visit to the Venezuelan city of Puerto Ordaz, in return for Chávez’s commitment to back yet another bond issue on Argentina’s behalf.


Foreign observers are missing an essential point: Latin American populism has nothing to do with social justice. It began as a reaction against the oligarchic state of the 19th century in the form of mass movements led by caudillos who blamed rich nations for Latin America’s plight. These movements based their legitimacy on voluntarism, protectionism, and massive wealth redistribution. The result, throughout the 20th century, was bloated government, stifling bureaucracy, the subservience of judicial institutions to political authority, and parasitic economies.

Populists share basic characteristics: the voluntarism of the caudillo as a substitute for the law; the impugning of the oligarchy and its replacement with another type of oligarchy; the denunciation of imperialism (with the enemy always being the United States); the projection of the class struggle between the rich and the poor onto the stage of international relations; the idolatry of the state as a redeeming force for the poor; authoritarianism under the guise of state security; and “clientelismo,” a form of patronage by which government jobs—as opposed to wealth creation—are the conduit of social mobility and the way to maintain a “captive vote” in the elections. The legacy of these policies is clear: Nearly half the population of Latin America is poor, with more than 1 in 5 living on $2 or less per day. And 1 to 2 million migrants flock to the United States and Europe every year in search of a better life.

Even in Latin America, part of the left is making its transition away from Idiocy—similar to the kind of mental transition that the European left, from Spain to Scandinavia, went through a few decades ago when it grudgingly embraced liberal democracy and a market economy. In Latin America, one can speak of a “vegetarian left” and a “carnivorous left.” The vegetarian left is represented by leaders such as Brazilian President Luiz Inácio “Lula” da Silva, Uruguayan President Tabaré Vázquez, and Costa Rican President Oscar Arias. Despite the occasional meaty rhetoric, these leaders have avoided the mistakes of the old left, such as raucous confrontations with the developed world and monetary and fiscal profligacy. They have settled into social-democratic conformity and are proving unwilling to engage in major reform—which is why Brazil’s gross domestic product (GDP) growth is not expected to top 3.6 percent this year—but they signify a positive development in the struggle for modernizing the left.

By contrast, the “carnivorous” left is represented by Fidel Castro, Hugo Chávez, Evo Morales, and Ecuador’s President Rafael Correa. They cling to a Marxist view of society and a Cold War mentality that separates North from South, and they seek to exploit ethnic tensions, particularly in the Andean region. The oil windfall obtained by Hugo Chávez is funding a great deal of this effort.

The gastronomy of Argentina’s Kirchner is ambiguous; he is situated somewhere between the carnivores and the vegetarians. He has inflated the currency, established price controls, and either nationalized or created government-owned enterprises in major sectors of the economy, but he has avoided revolutionary extremes and paid his country’s debts to the International Monetary Fund, albeit with the help of Venezuelan credit. Kirchner’s ambiguous position has been helpful to Chávez, who has filled the power vacuum in the South American Common Market to project his influence on the region.

Oddly, many European and American “vegetarians” support the “carnivores” in Latin America. For instance, Joseph Stiglitz has defended various nationalization programs in Morales’s Bolivia and Chávez’s Venezuela. In an interview with Caracol Radio in Colombia, Stiglitz said that nationalizations should not cause alarm because “public firms can be very successful, like the Social Security pension system in the United States.” Stiglitz has not called for nationalizing major private or publicly traded companies in his own country (the Social Security system was created from scratch), and he seems unaware that, south of the Rio Grande, nationalizations are at the heart of the disastrous populist experiences of the past.

Stiglitz also ignores the fact that in Latin America, there is no real separation between the state’s institutions and the administration in charge, so government companies quickly become conduits for political patronage and corruption. Venezuela’s main telecommunications company has been a success story since it was privatized in the early 1990s; the telecommunications market has experienced an increase of about 25 percent in the past three years alone. By contrast, the government-owned oil giant has seen its output systematically decline. Venezuela today produces about a million fewer barrels of oil than it did in the early years of this decade. In Mexico, where oil is also in government hands, the Cantarell project, representing almost two thirds of national production, will lose half its output in the next couple of years because of undercapitalization.

Does it really matter that the American and European intelligentsia quench their thirst for the exotic by promoting Latin American Idiots? The unequivocal answer is yes. A cultural struggle is under way in Latin America—between those who want to place the region in the global firmament and see it emerge as a major contributor to the Western culture to which its destiny has been attached for five centuries, and those who cannot reconcile themselves to the idea and resist it. Despite some progress in recent years, this tension is holding back Latin America’s development in comparison to other regions of the world—such as East Asia, the Iberian Peninsula, or Central Europe—that not long ago were examples of backwardness. Latin America’s annual GDP growth has averaged 2.8 percent in the past three decades—against Southeast Asia’s 5.5 percent, or the world average of 3.6 percent.

This sluggish performance explains why about 45 percent of the population is still poor and why, after a quarter century of democratic rule, regional surveys betray a profound dissatisfaction with democratic institutions and traditional parties. Until the Latin American Idiot is confined to the archives—something that will be difficult to achieve while so many condescending spirits in the developed world continue to lend him support—that will not change.

If you win a Nobel, you get a free trip to Scandinavia, a shiny gold medal, some cash, and, most important, a shot at intellectual immortality. But becoming a laureate doesn’t make you immune to stupidity, especially when it comes to Latin America.

Harold Pinter, Nobel Prize in Literature, 2005

Ignoble Quote: “The United States finally brought down the Sandinista government … The casinos moved back into the country. Free health and free education were over. Big business returned with a vengeance.” —Nobel Prize acceptance speech, Stockholm, Dec. 7, 2005

Reality Check: Harold, hate to break it to you, but it was actually the Nicaraguan voters—not the United States government—who kicked the Sandinistas out.

Joseph Stiglitz, Nobel Prize in Economics, 2001

Ignoble Quote: “Chile has had impressive success over the past 15 years. . . . [It] imposed capital controls. It only privatized part of its copper mines, and the privatized mines arguably did not perform better than the nationalized ones, though the profits were sent abroad, while the profits of the nationalized mines could be used in the nation’s efforts to develop.”
—International Herald Tribune, Feb. 14, 2007

Reality Check: If the policies Stiglitz cites—capital controls, nationalized mines, and government intervention in allocating the profits generated by commodity exports—explain Chile’s success, why isn’t any other Latin American country with the same policies nearly as successful?

Günter Grass, Nobel Prize in Literature, 1999

Ignoble Quote: “Cubans were less likely to notice the absence of liberal rights . . . [because they gained] . . . self respect after the revolution.”— Dissent, Fall 1993

Reality Check: How would you feel, Günter, about trading your bourgeois liberal rights, including the right to publish, for a bit of Cuban dignity?

Rigoberta Menchú, Nobel Peace Prize, 1992

Ignoble Quote: “For common people such as myself, there is no difference between testimony, biography, and autobiography . . . I was a survivor . . . who had to convince the world to look at the atrocities committed in my homeland.”— Press conference, United Nations, Feb. 11, 1999

Reality Check: Menchú was defending herself against charges that she had fabricated parts of her autobiography—making herself sound more downtrodden than she was—when she wrote about her life as an ethnic Quiche Maya in Guatemala. Why lie when there are plenty of harsh-but-true stories to be told? — AVL


January 12, 2007

Venezuela’s Chavez May Use Heavy Hand In Nationalization

Filed under: Venezuela — rdrutherford @ 2:23 am

Venezuela’s Chavez May Use Heavy Hand In Nationalization
Dow Jones Newswires – January 11, 2007 7:38 AM ET

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AES Trade 20.40 -0.34
BP Trade 61.59 +0.12
COP Trade 61.82 -2.71
ELDAY Trade 10.523 0.00
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TOT Trade 66.65 +0.48
VNT Trade 14.01 +0.01
VZ Trade 37.11 +0.36
XOM Trade 70.98 -0.01
Real time quote.
(This article was originally published Wednesday)
By Raul Gallegos
CARACAS (Dow Jones)–Venezuelan President Hugo Chavez has vowed to nationalize companies in key sectors of the economy but few know how he will do it. Will he offer company owners a carrot or a stick? Many fear he will use both.

In his bid to control strategic telecommunications and power sectors, observers say, the president will likely take a heavy-handed approach to negotiating a price.

Ministers and lawmakers say Chavez will negotiate with company shareholders and will respect their rights, but offer few details about how this will happen.

Chavez announced Monday he will change the face of Venezuela’s economy by nationalizing CA Nacional Telefonos de Venezuela (VNT), or CANTV, the country’s top telecom, power utilities not already in state hands, and gain control of upstream production of extra-heavy oil and the refineries handling its preliminary processing.

He reiterated those plans again Wednesday, after he was sworn in for a second-six year term as president, vowing to consolidate a “socialist” revolution. He added that natural gas operations should also come under state control.

The fallout for CANTV and Electricidad de Caracas (ELDAY), or EDC, the biggest power utility in the country servicing the Caracas metropolitan area, was swift and severe. Shares of CANTV in New York plunged an accumulated 38% over the first two sessions of the week. Locally, the shares plunged at the open Tuesday, prompting regulators to impose a 48-hour trading halt on them. They did the same with EDC after its shares lost a fifth of their value on the Caracas stock exchange.

CANTV’s ADRs bounced back 15% to $14 Wednesday on news that the government would provide some form of compensation.

The U.S.’s Verizon Communications (VZ) has a 28.5% controlling stake in CANTV, while AES Corp. (AES), also of the U.S., controls EDC.

In the Orinoco river basin, six firms – Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Statoil (STO), Conoco Phillips (COP), Total (TOT) and BP Plc (BP) – have invested billions of dollars in the extra-heavy oil upgraders. They have already held off from taking Venezuela to court over a continuing contract overhaul, not to mention tax hikes in 2004 and 2005 that went against original contract terms.

For Ricardo Sanguino, head of the congressional finance commission, Chavez could create a special nationalization law that will give him the needed legal framework for company takeovers, but he insists no strategy has been defined yet.

“We will respect the shareholder rights of all the companies the state moves to nationalize,” Sanguino said. “We will negotiate.”

Sanguino’s remarks and those of other officials seem to indicate Chavez will sit at the negotiating table but with a strong law to back his claim on company assets.

Most legal analysts believe the president has three main options to gain control of big companies: He can negotiate a sale with shareholders, he can expropriate the shares or the company’s assets, or he can pass a nationalization law for “strategic sectors” and then offer owners a price.

The leftist leader insisted this week that congress will give him “the mother of all revolutionary laws,” suggesting he will have almost unlimited freedom to tinker with Venezuela’s legal framework.

“He will tailor a law to his needs to nationalize the companies and will then negotiate under his own terms,” said a former minister who was involved in the nationalization of the oil industry and CANTV’s sale much later, and who declined to be named.

Critics point out the president likes to have an ace in his sleeve before he makes such moves.

Venezuela has a long history with nationalization laws. The oil-rich nation enacted one for the oil and gas industries during the 1970’s. Congress also approved a nationalization law for the steel sector in 1974. In all cases, the government sought to negotiate prices with those companies involved.

Chavez might prove a tough negotiator, observers note, but he certainly has the money to cover a spending binge.

Over the past few years, the president has amassed more than $50 billion in several funds, including the central bank’s foreign reserve holdings, and could comfortably buy several large companies.

Money aside, some critics argue CANTV’s nationalization will likely be long, costly and could even fail in the end.

“I’m betting they won’t do it in the end once they realize how hard the process can be,” said Roberto Smith, an opposition politician who oversaw CANTV’s privatization process in the early 1990’s.

Smith notes Chavez will have to pay shareholders for the operating concession and for the assets of a company that remains one of the most profitable in the country.

“If they manage to nationalize it somehow, the company will become a failure in two year’s time,” Smith predicted.

How effectively Chavez’s government will be at running the new state-controlled firms is another question on people’s minds.

The Chavez administration has developed a reputation over the years for managerial inefficiency.

On his watch, state-oil firm Petroleos de Venezuela (PVZ.YY) has seen its production capacity decline from about 3.3 million barrels a day to some 1.6 million b/d, according to industry estimates, which don’t include output from joint-ventures with foreign firms. Chavez has tapped PdVSA’s cash-flow to fund social programs, depriving the company of investment capital.

PdVSA’s once-vaunted culture of meritocracy and operational autonomy have been replaced by what Chavez now calls PdVSA’s “revolutionary” orientation and its employees’ allegiance to leftist ideals.

The president’s team has also failed to advance in its ambitious housing plan for the poor, failing to meet housing targets every year since Chavez took power in 1999.

Efficiency aside, Chavez has made clear these moves are simply a fraction of what is still to come as he steers the country to a “new socialist system.”

Trade of CANTV stocks resumes in Caracas

Filed under: Venezuela — rdrutherford @ 2:16 am

Trade of CANTV stocks resumes in Caracas
Reuters – January 11, 2007 12:14 PM ET

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VNT Trade 14.01 +0.01

CARACAS, Jan 11 (Reuters) – Venezuelan authorities on Thursday lifted a suspension on trading shares in media group CANTV (VNT)TDVd.CR after investors panicked over President Hugo Chavez’s plans to nationalize the firm.

Chavez on Monday announced a broad campaign to nationalize telecommunications and power utilities, pushing CANTV’s stock down 30 percent and paring 20 percent off the value of the Caracas Stock Exchange.

The National Securities Commission said it had lifted a 48-hour suspension of trading CANTV shares.

Venezuela Telecom Nationalization Only CANTV – Min

Filed under: Venezuela — rdrutherford @ 2:14 am

UPDATE: Venezuela Telecom Nationalization Only CANTV – Min
Dow Jones Newswires – January 11, 2007 5:02 PM ET

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(Includes additional comments from telecommunications minister, background)
CARACAS (Dow Jones)–Venezuela plans to nationalize only the nation’s largest telecommunications firm this year, CA Nacional Telefonos de Venezuela (VNT), because it has blocked competitors from entering the local market, said Jessie Chacon, who was recently named telecommunications minister.

Speaking to reporters at a press briefing, Chacon said the state has not decided how much of an equity stake it will buy in CANTV, as the company is known, but said the government plans to control both the fixed-line and cellular divisions of the firm.

“We’re still evaluating that, but for now we have considered buying CANTV as a whole,” said Chacon, when asked if the state would also buy the Movilnet cellular division of the company.

In the oil industry, Venezuela is seeking majority stakes of at least 51% in projects that were previously controlled by private firms.

Chacon said the telecommunications nationalization is meant to improve access to phone services.

U.S. telecommunications giant Verizon Communications (VZ) holds a 28.5% stake in CANTV and had plans to sell its stake for $677 million, which represents only 0.6% of the Verizon’s market capital.

“There have been some advances in telecommunications services, but large areas of the country have no coverage due to the dominance of the largest company that has blocked the access of competitors,” Chacon said.

CANTV controls 83% of the internet market and 70% of local long distance, said Chacon. “That’s why we decided to nationalize.”

He added that the government will begin reviewing existing telecommunications legislation next week, which will be rewritten by the Hugo Chavez administration under special legislative powers Congress has promised to grant the president.

Chacon said Venezuela will also review the process of granting telecommunications concessions.
-By Raul Gallegos, Dow Jones Newswires; 58212-564-1339; raul.gallegos@dowjones.com;

Venezuela officials map out nationalization details

Filed under: Venezuela — rdrutherford @ 2:11 am

UPDATE 4-Venezuela officials map out nationalization details
Reuters – January 11, 2007 7:11 PM ET

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CMS Trade 16.12 -0.03
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By Saul Hudson
CARACAS, Jan 11 (Reuters) – Venezuela on Thursday mapped out further details of nationalizations at the core of its promised socialist revolution, targeting some firms with leading shareholders in the United States.

President Hugo Chavez, buoyed by a landslide re-election last month, has announced the state takeover of utilities to mold Venezuela into a socialist republic, felling confused investors who are awaiting more details.

Cabinet ministers on Thursday said all electricity firms would be taken over by the government, but only the leading telecommunications firm would be bought out. For the time being, other industry sectors will be spared nationalization.

Economy Minister Rodrigo Cabezas confirmed the entire power sector, including market leader Electricidad de Caracas EDC.CR, majority owned by AES Corp. (AES), would pass to state control.

“The entire electricity sector is included because it is a strategic element for the development of the national economy,” Cabezas told state television.

The nationalization drive could also affect U.S.-based utility CMS Energy (CMS), an 87 percent stakeholder in Seneca, the power provider on Venezuela’s Caribbean resort of Margarita Island.


Later in the day, Telecommunications Minister Jesse Chacon gave more details of the state’s plan to take over CANTV TDVd.CR (VNT), the OPEC member nation’s biggest telecommunications company, in which the leading shareholder is U.S. telecoms giant Verizon (VZ).

He said the government would take full control of CANTV, including its mobile phone unit. The takeover would be a purchase, but investors said they had not yet been contacted.

The size of the stake in CANTV that Venezuela will buy also remains unclear.

Cabezas said there were no other immediate takeover plans outside of the power firms and CANTV.

CANTV shareholders have taken heart from ministerial comments that the firm will not be confiscated but that some payments will be made. The stock plunged 30 percent on Tuesday but recouped 11 percent by the close on Thursday.

Its American Depository Shares closed up 0.07 percent.

“Telecoms are the great catalyst to change the primitive man of today, the selfish man of today, into the new man, the truly humanist man,” said Chacon, noting that CANTV’s telephone and Internet services would boost the South American country’s socialist revolution.

However, the power sector has not received similar assurances. EDC shares lost 3.31 percent while AES slid 1.64 percent.

“Obviously from our end we have a lot of questions. We’re waiting for the details,” said CMS spokesman Jeff Holyfield. “Until we see a full plan with details, we really cannot say too much.”

CMS shares ended down 0.19 percent.

Chavez has previously confiscated big private cattle ranches and has long tried to wrest control of oil projects out of the hands of oil majors, such as Chevron (CVX), Exxon Mobil (XOM), BP BP.L and ConocoPhillips (COP). (Additional reporting by Herbert Lash in New York)

January 10, 2007

After CANTV loss, Telmex looks elsewhere in Americas

Filed under: Venezuela — rdrutherford @ 7:17 pm

After CANTV loss, Telmex looks elsewhere in Americas
Reuters – January 10, 2007 12:02 PM ET
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VNT Trade 14.63 +2.43
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MEXICO CITY, Jan 10 (Reuters) – Venezuela’s decision to privatize CANTV has closed the door on plans by Telmex to buy the South American nation’s largest telecom but will not halt the Mexican company’s regional expansion, Telmex said on Wednesday.

Arturo Elias Ayub, strategic alliance director of Telmex and son-in-law of billionaire Telmex owner Carlos Slim, told local radio there was “much less” chance of Telmex and sister company America Movil buying into CANTV (VNT) TVDd.CR now.

Venezuelan President Huge Chavez said on Monday he would nationalize CANTV and unnamed power utilities.

Slim’s mobile giant, America Movil, and his fixed-line business, Telmex, agreed in April to pay $3.7 billion for the Latin American assets of U.S. firm Verizon Communications Inc. (VZ), including its 28.5 percent stake in CANTV. Slim also offered to buy all outstanding CANTV shares.

Elias Ayub said Telmex and America Movil had not heard from Venezuelan regulatory authorities since April.

“We have had no response from the authorities to see if they would allow us to buy this stake, no response either positive or negative, nothing, and the first news is this last one where the possible nationalization is announced,” he said.

“We have been left as if we had not done anything,” Telmex’s director said.

Telmex has started on a regional expansion in Latin America to boost its business, in part because of its stagnating revenue in Mexico.

“There are many (opportunities) throughout Latin America — in Colombia, Peru, Ecuador, Chile, Argentina, Brazil and even in Venezuela,” Elias Ayub said.

After declining on Tuesday, Telmex’s stock TELMEXL.MX dipped a further 0.90 percent on Wednesday to 14.39 pesos. America Movil AMXL.MX shares slipped 0.46 percent to 23.76 pesos.

Venezuelan bond risk fears may be overblown – analysts

Filed under: Venezuela — rdrutherford @ 7:13 pm

Venezuelan bond risk fears may be overblown – analysts
Marketwatch – January 10, 2007 1:11 PM ET
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NEW YORK (MarketWatch) -Venezuelan President Hugo Chavez’s plans to nationalize key industries has sparked a sell-off in the nation’s bonds, but investors may be exaggerating the political risk, analysts said Wednesday.

Heavy selling has pushed the yield on the nation’s most heavily traded 34-year bond, due in 2034, up to 7.06% on Wednesday from 6.70% a week before, according to Ricardo Amorim, head of Latin American research for WestLB in New York City. Prices and yields move in opposite directions.

Venezuelan bonds and stocks have been under pressure this week, partly due to Chavez’s vow to nationalize the nation’s biggest phone company, CANTV (VNT). See full story.

Chavez said his government is also planning to nationalize the electricity sector. The president has already introduced protectionist measures in the oil industry.

“Despite increased risk that bondholders will become the next target, we think that willingness to pay will remain high,” said UBS economists Javier Kulesz, Catherine Agnelli and David Treiger.

They predicted the government’s liquidity position will remain strong relative to its debt obligations.

“The Chávez administration has been an active market player, both as a borrower from the market and as a lender to regional countries, and it is unlikely to want to erode these abilities by advancing market unfriendly initiatives,” the economists wrote in a research note.

“There is little short-term [default] risk but the medium- and long-term risk has increased,” said WestLB’s Amorim.

Venezuelan debt has also been hit this week by a sharp slide in crud- oil futures, said Amorim. See crude story.

Venezuela’s debt is extremely sensitive to fluctuations in energy prices because oil accounts for 25% of the economy, 85% of exports and 50% of government revenue, he said.

Amorim said his institution is expecting the drop in crude prices, which has resulted in part from unseasonably warm weather in much of the U.S., to stabilize soon.

“I would not buy Venezuelan bonds at this point,” he said. “But we may be near the end of the crude slide and that would make bonds more attractive.”

Venezuela’s Chavez sworn in for radical new term

Filed under: Venezuela — rdrutherford @ 7:10 pm

UPDATE 3-Venezuela’s Chavez sworn in for radical new term
Reuters – January 10, 2007 1:35 PM ET
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(Adds Chavez on natural gas sector, economy minister)
By Saul Hudson
CARACAS, Jan 10 (Reuters) – Venezuelan President Hugo Chavez was sworn in on Wednesday for a new six-year term and vowed to press a radical socialist revolution including nationalizations that have roiled financial markets.

Emboldened by his landslide re-election win, the typically combative anti-U.S. leader kept up his attack on private property, proposing a constitutional reform that would wrest control over the natural gas sector back to the state.

The move followed his decisions before the swearing-in to strip a private opposition TV channel of its license and take over major telecommunications and electricity companies, some owned by foreign investors.

“The people voted for the path of socialism, the people want and require socialism and the fatherland needs socialism,” Chavez said.

The man who calls Cuban President Fidel Castro his mentor changed tradition by draping the presidential sash from his left shoulder instead of his right in what he says is a symbol of his socialist credentials.

Investors took fright this week at the leftist drive that further consolidates power in the hands of a former coup leader who already controls Congress, the courts and says he has total support in the army and the OPEC nation’s state oil company.

As the United States criticized Chavez’s moves against private property, the stock market lost almost a fifth of its value on Tuesday, debt prices tumbled to a six-week low and the currency changed hands at nearly twice the official rate.

Chavez dismissed the stock market plunge as the result of speculators stoking alarm among investors.

He cited passages of the bible praising the redistribution of wealth, but gave no details to flesh out his nationalization plan against utilities, leaving investors to guess whether he wants the state to have a majority stake or 100 percent control.

But his new economy minister told Reuters the government ruled out using confiscation to nationalize leading telecom CANTV TDVd.CR(VNT) and was studying mechanisms to possibly compensate shareholders for the takeover.


Buoyed by strong oil prices and high popularity, Chavez is expected to ride out any economic and political storm — especially because crude revenues and not Venezuela’s economic policies generally lure investment into the country.

In his political career, the former army officer has survived jail, a coup and a recall referendum.

A leading anti-U.S. voice in the world and in the vanguard of a shift to the left in Latin America, Chavez now wants to scrap presidential term limits and stay in power for decades.

Chavez, who won 63 percent of the vote in December, reiterated he wants new powers to rule by decree.

The opposition has accused Chavez, in office since 1999, of seeking to transform the fourth-biggest oil exporter to the United States into a Cuban-style centralized economy.

Polls have shown Venezuelans are generally leery of expropriations of private property but in principle support nationalizations of companies if the moves are believed to be in the interest of the country

Chavez’s natural gas proposal extends his policy of gradually taking control over the energy sector.

But by opening new fronts against the media and utilities in his new term, Chavez is homing in on two sectors that could complete his state control.

“Chavez interprets the election result as giving him a blank check to develop a program that runs against the interests of Venezuela and only serves to benefit himself,” Omar Barboza, a leading opposition official, told Reuters.

(Additional reporting by Patricia Rondon, Brian Ellsworth and Ana Isabel Martinez)

Venezuela To Negotiate With Owners -Lawmaker

Filed under: Venezuela — rdrutherford @ 7:05 pm

UPDATE: Venezuela To Negotiate With Owners -Lawmaker
Dow Jones Newswires – January 10, 2007 1:47 PM ET

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(Updates with more comments from Sanguino)

CARACAS (Dow Jones)–Venezuela’s drive to nationalize telecommunications and electric-utility companies will include negotiations with company owners, a lawmaker said Wednesday.

“We’re not going to do anything illegal. We will negotiate with the citizens” who own the company stocks, Ricardo Sanguino, head of the congressional finance commission, told reporters about nationalization plans for Nacional Telefonos de Venezuela CA (VNT), CANTV. “We will respect the shareholder rights of all the companies the state moves to nationalize.”

Sanguino told Dow Jones Newswires that Chavez could create a special law to streamline the nationalization process. He didn’t specify what kind of law the president could create.

Government officials and local observers have noted that the government could choose to use expropriation laws to take over companies, but Chavez has so far provided few details on how he will proceed.

On Monday, President Hugo Chavez announced his government will nationalize CANTV, as well as companies in the electricity sector. He also vowed to change the commerce code and strip the central bank of any independence.

Nervous investors in Venezuela and abroad dumped CANTV shares and those of electricity company Electricidad de Caracas CA (ELDAY), another company seen as a possible target for nationalization.

Sanguino declined to give specifics on which companies in the electricity sector could be affected by the nationalization drive.

The latest announcements, Chavez has said, are just the beginning of a series of policies intended to help his government create a homegrown socialism in the Andean country.

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