PrintJanuary 10, 2007
Venezuela expropriates (updated)
Emerging markets were severely rocked yesterday by news of Venezuelan dictator Hugo Chavez's announced expropriation of the electrical and phone companies to advance his ‘revolution.' It's part of a long string of expropriations intended to destroy the Venezuelan private sector - everything from farms to factories to apartments to nature reserves.
But few investors thought it could happen so suddenly or so severely on major western-held assets, as both telephone company CANTV and the electrical company really were. Check out what CANTV's drop looked like on the charts, for one. Meanwhile, looking forward, many are wondering whether there will be any compensation at all to the targeted investors. Plenty of Wall Streeters say the time to bail out of Venezuelan holdings is right now.
Around the blogosphere, there's been significant interest in how Venezuelans are taking it, and thoughtful Venezuelan bloggers, like Miguel Octavio, Gustavo Coronel and Daniel Duquenal have written their thoughts in long essays on the implications of the expropriations.
Miguel, who saw and heard the whole thing on the television from Caracas, sees this confiscation of assets as something that seems to have been done on the fly by Chavez, spouting off on stage and prematurely revealing the kind of plotting that had been going on at the presidential palace, wholly disorganized. But he also sees a parallel between the falling markets and the falling democracy and their odd confluence in Chavez's startling threats to confiscate. His interesting essay can be read here.
Gustavo focuses on Chavez's political moves, such as the lunatic shakeups in the Chavez cabinet of late, where the net result has been the rise of real Marxists in the Chavez cabinet. He thinks that's related to Chavez's dictatorial moves, and bluntly calls Chavez's governance real dictatorship, fully in league with failed rogue states like Zimbabwe. It's hard to disagree with him, here.
Daniel in Yaracuy state in Venezuela says that the nationalizations will create a tremendous mess of inefficiency, but the main purpose of them wasn't to serve the public better, but to provide new opportunities for political patronage. The electrical company in particular was constantly complaining to the government about shantytown dwellers - who are Chavez's political base - siphoning off electricity illegally, forcing the remainder of Venezuelans to pay higher electrical bills to compensate for the stolen electricity. Now that Chavez has his hands on the electrical company, the real aim of it is to halt the complaints, allow shantytown dwellers to steal as much as they like, and provide patronage jobs for some of them. As you may imagine, this whole scheme will be a disaster for electricity in Venezuela. Read it here.
Meanwhile, in news analyses, Investor's Business Daily thinks the choices of expropriations are interesting - they are probably a bid for the state to take control over the Internet, something the Cuban advisors around Chavez's cabinet have expertise in. The Internet is highly dependent on both electricity and telecom lines and any disruption in either could halt access to it. It's no coincidence that this expropriation moves comes sharp on the heels of Chavez's effort to drive a television station out of business, and all signal a bid to control information to control for far worse deeds likely in the future in Chavez's Bolivarian revolution. It can be read here.
Pajamas Media has links to additional roundups, and the story is sure continue dramatically. The only bright spot may be that the insanity of Chavez's moves may drive him from power faster than he can destroy Venezuela's infrastructure. One can only hope.
Update:
Update:
David Paulin of The Big Carnival recalls what a miserable telephone utility CANTV's predecessor was under state ownership:
Poorly managed as a state-owned company, CANTV was rife with do-nothing political patronage jobs and corrupt unions that got what they wanted. In short, it was what you'd expect in nation with a statist economy that, according to corruption-watchdog Transparency International, was among the world's most corrupt.Venezuela had a population of about 20 million people at the time - yet only 1.6 million of them had telephones. It wasn't for lack of money. Rather, the money-losing state phone company took years to hook up phone lines - unless you had political connections, bribed the right officials or purchased a stolen line.The state phone company, according to some accounts, took out advertisements asking its customers not to use the phones too much.When Venezuela had enough of telecom socialism, GTE was allowed to buy 40% of the phone company, and launched a massive modernization program, greatly improving service.
Does anyone doubt that socialism will result in a reversion to terrible service? How long before only those who pass a political litmus test can get phone and internet service?
