CARACAS — President Hugo Chávez’s decision Wednesday to nationalize Venezuela’s biggest steel maker — just six days after announcing plans to take over the country’s major cement companies — is an attempt to take politically popular measures, analysts say.
Chávez is showing his renewed commitment as well to putting key foreign-owned sectors of the economy under government control, the experts said. His government also is planning to impose a windfall profits tax on foreign oil producers.
Until the recent flurry of activity, Chávez had taken a more hands-off approach to the economy after voters rejected proposed changes to the Constitution in December that included a call for Venezuela to become a Socialist state.
But Chávez’s popularity is sagging amidst rampant crime, rising inflation and widespread food and housing shortages. Political jockeying already has begun for elections on Nov. 23, when Venezuela will elect mayors and governors.
”Chávez is looking to address critics who have brought the government to task for not building enough housing and infrastructure,” said Patrick Esteruelas, a risk analyst with the New York-based Eurasia Group. “He is using the foreign-owned cement and steel companies as a scapegoat in an attempt to boost the government’s standing in the run up to the November elections.”
Nationalizing the Argentine-owned steel company — whose formal name is Siderúrgica del Orinoco or Sidor — and the three cement companies could cost the Chávez government more than $3 billion to fully indemnify the owners, according to Esteruelas.
But the windfall tax on oil companies of 50 or 60 percent on oil above $70 per barrel could produce at least $1 billion to the government, Oil Minister Rafael Ramírez said Wednesday.
Venezuelan economist Pedro Palma said the government has been having cash-flow problems but has enough money to pay for the nationalizations if senior officials want to dip into its $49 billion of foreign reserves.
The economy continues to grow rapidly, fueled by record high oil prices.
But various government takeovers and threatened nationalizations seem to be taking their toll.
Venezuela had the lowest level of foreign investment in 2007 among Latin American nations, at less than 1 percent of Gross Domestic Product, according to new figures from the Economic Commission on Latin America and the Caribbean.
In 2007, the government nationalized privately-owned electricity and telecommunications companies and took a majority share of the remaining privately-owned oil companies operating in Venezuela.
But Chávez backed off intervening so overtly in the economy until he recently announced the nationalization of two Venezuelan companies — a major dairy and a meat packing chain — in an effort to quell consumer complaints about the frequent absence of milk and meat from supermarket shelves.
Vice President Ramón Carrizález said on Wednesday that the government had no choice but to nationalize Sidor. The company, which had been privatized in 1998 by Chávez’s market-friendly predecessor, had been the target of at least five strikes this year by workers demanding better pay and working conditions.
Ternium, a subsidiary of an Argentine conglomerate, the Techint Group, owns 60 percent of Sidor. The government and current and former workers each own 20 percent.
Chávez had threatened to nationalize Sidor last year unless the company increased production for suppliers.
”The intransigence of the company has forced the government to act on behalf of the workers,” Carrizález said on Wednesday, accusing Ternium officials of having a ”colonial” attitude toward the workers and Venezuelan government.
Sidor’s workers applauded the nationalization.
A Ternium press release said the company offered to increase workers salaries, boost pension payments and turn 600 contract employees into salaried employees.
The company has some 5,400 workers and another 9,000 contractors. Carrizález said the contract workers are ”exploited” by receiving less pay for doing the same work as salaried employees.
The nationalization did not please investors. Ternium’s shares declined Wednesday by seven percent on the New York Stock Exchange.
Only last week that Chávez announced he would nationalize three foreign-owned cement companies. He blamed a housing shortage on them, saying the companies have restricted production to boost prices.
While Chávez frequently rails against ”the empire” — his favorite name for the United States — as with Techint, the three cement companies are owned by non-U.S. companies: Mexico’s Cemex SAB, France’s Lafarge SA and Switzerland’s Holcim Ltd.
Carrizález said he didn’t think the nationalization of Sidor would harm relations with Argentina. The Argentine government offered no immediate response.
Mexico, for its part, condemned the nationalization and demanded a meeting with Venezuela’s ambassador immediately after the Cemex announcement.
On Monday, Cemex issued a statement “expressing its willingness to talk with [Venezuelan] authorities to find a mutually acceptable solution.”
With all of the recent nationalizations, the Venezuelan government has said it would be willing to accept no more than a 60 percent share of the companies.
Source: Miami Herald
Yep, it worked for Mugabe. Why, look what a shining example Zimbabwe’s economy is to the world.
