Chávez Seizes Greater Economic Power

Chávez Seizes Greater Economic Power
By SIMON ROMERO
Published: May 18, 2008

CARACAS, Venezuela — Faced with shortages of foods, building materials
and other staples, President Hugo Chávez is intensifying state control
of the Venezuelan economy through a new wave of takeovers of private
companies and the creation of government-controlled ventures with allies
like Cuba and Iran.

The moves come just months after voters rejected a referendum to give
the president sweeping constitutional power over the economy and public
institutions, leading to new accusations that Mr. Chávez is more
interested in consolidating power than in fixing Venezuela's problems.

And while he has argued that aggressive action against the private
sector is needed to correct social injustices and fight soaring
inflation, his critics say his moves are instead compounding those troubles.

One significant measure is foreign investment, which has hit record
levels in several other Latin American countries but has fallen in
Venezuela.

As foreign interests reacted to Mr. Chávez's socialist-inspired changes,
including nationalizations last year of major electricity, telephone and
oil companies, outside investment dropped to just $500 million in 2007.
In contrast, Peru, with a population comparable to Venezuela's 27
million, received $5.4 billion in foreign investment last year.

Still, Mr. Chávez is pressing ahead with the takeovers of companies big
and small. These include Sidor, a large, Argentine-controlled steel
maker; cement companies owned by Mexican, Swiss and French investors;
more than 30 sugar plantations; a large dairy products company; and a
sprawling cattle estate on the southern plains.

Mr. Chávez has avoided outright confiscation of private companies by
offering some compensation, but the terms of these deals are growing
increasingly contentious, with the president threatening to withhold
payments. In Sidor's case, the company had asked for up to $4 billion in
compensation; Mr. Chávez is giving it $800 million.

Pavel Gómez, an economist with ODH, a financial consulting business
here, said, "In the end, the nationalizations carry the risk of making
the economy even more dependent on oil exports than it already is."

The state role in the economy is broadening as Venezuela's once torrid
growth has slowed somewhat, even though world oil prices have climbed to
record highs. Private economists expect the economy to grow about 6
percent this year, compared with 8.4 percent in 2007.

But Mr. Chávez is wagering that he can fill the gap, particularly in
foreign investment, through new ventures with allies like Cuba and Iran.

For instance, after a three-day visit here last month by a high-level
Iranian delegation, Venezuela and Iran agreed to build a manufacturing
plant for tractor parts and a cement factory. Similarly, Venezuela
announced the creation this month of two companies with Cuban partners
in the fishing and pork industries.

Potentially of greater impact, China and Venezuela inaugurated the
headquarters here of a $6 billion fund this month to carry out
infrastructure projects. Beijing is putting $4 billion into the fund,
part of an effort by Mr. Chávez to export more oil to China in exchange
for more Chinese investment in Venezuela.

Meanwhile, Mr. Chávez is testing new policies to curb a slide in the
currency, the bolívar, and restiveness over food shortages. Protests
broke out this year in parts of Venezuela over food shortages and
climbing food costs, including one disturbance in Sabaneta, Mr. Chávez's
impoverished home city, in Barinas State.

Some of the new economic policies, aided by ample oil income, are
working relatively well.

The black market rate of the bolívar climbed more than 20 percent in the
past two months, to 3.4 to the dollar, after the government soaked up
demand for foreign exchange by selling dollar-denominated bonds to
investors here. The move brought some stability to a currency that had
been shaken by accelerating capital flight in the past year.

A recent surge in oil prices has also helped Mr. Chávez's government
mask declining production at the national oil company, Petróleos de
Venezuela. His supporters in the National Assembly recently approved a
windfall tax on oil producers, potentially giving the government more
than $2 billion in extra revenue this year.

Anxiety here has also eased with the reappearance of some foods on
supermarket shelves, notably milk. Stung by criticism over milk
scarcity, the government eased price controls for milk and recently took
over a large dairy concern, Lácteos Los Andes, directing it to reduce
yogurt production and raise milk output.

However, fears are intensifying that Mr. Chávez will press ahead with
even more nationalizations. Recent disarray in the gold mining industry,
with licenses of several foreign companies suspended, has raised
speculation that the government could take over mining concessions next.

And Mr. Chávez is increasingly issuing threats of expropriation, against
entities ranging from private hospitals to cacao plantations.

Despite the new nationalizations, and the creation of state companies in
recent years as varied as a national airline, Conviasa, and the Hotel
Alba, which occupies the building of the old Caracas Hilton here,
Venezuela's economy remains an amalgam of private and state enterprises.

Mark Weisbrot, a Washington-based economist who is broadly supportive of
Mr. Chávez's economic policies, estimates that the public sector
accounts for less than a third of the economy even after the latest
nationalization wave. "The present government is so far mainly just
reversing some of the privatization that took place in the 1990s," Mr.
Weisbrot said.

But Mr. Chávez's political opponents are questioning why the president
is putting even greater power in his government's hands, with the
National Assembly, Supreme Court, federal bureaucracy and most state
governments already controlled by his followers.

Opposition figures point out that some of the new policies are
reminiscent of measures put forward by the president in last year's
failed referendum, which would have vastly increased his powers.

Mr. Chávez is also trying to introduce changes to school curriculums so
that they would look uncritically at his government. That move has
generated fierce criticism from parents' groups.

The president may be having more success, at least for now, in asserting
control over the armed forces. In a move similar to a measure in last
year's referendum that would have transformed the military reserve into
"popular militia units," Mr. Chávez created a reserve force last month,
with a budget separate from the other armed forces, and with commanders
under his direct control.

Some of the most pointed criticism in this coup-prone country is coming
from Mr. Chávez's former military comrades. "Chávez is stimulating a
pre-insurrectional climate in the country," said Raúl Isaías Baduel, a
retired general who was the top commander of Venezuela's military until
he broke with the president last year, saying Mr. Chávez was going
beyond the law with some projects.

The nationalizations, General Baduel said, were part of a plan by Mr.
Chávez "to annihilate the productive apparatus so that we depend more on
petroleum income, which is to depend more on the state, or in other
words, to depend more on Chávez."

http://www.nytimes.com/2008/05/18/world/americas/18venez.html?_r=1&pagewanted=all&oref=slogin