Markets in Venezuela plunged and the effect was felt elsewhere, as investors were reminded of why these markets are called “emerging markets” and how politicians’ whims can change and turn the direction of the markets in no time.
What was clear was that Chavez’ remarks on Monday were improvised and reflected conversations within the administration, but they were certainly not ready to announce anything But, as usual, the autocrat can not contain himself on a stage and besides his insults to the church, the OAS Secretary General and anyone that opposes or disagrees with him, he also let out plans that were apparently not ready to be revealed.
And it was the lack of detail about the plans for nationalization that shook the markets. First of all, Chavez was only specific about the telephone company CANTV, which he ordered nationalized. CANTV is 29% owned by US based Verizon, which had reached an agreement with Mexican telecom magnate Carlos Slim to sell its stake at US$ 21 per share traded in the New York Stock Exchange. That sale was being held up since June by the Venezuelan telecom and anti-monopoly regulators, which kept asking for more information without reaching a decision. Under Venezuela’s market laws, an offer like that had to be extended to all shareholders of the company under the same conditions, which had driven the price of the company’s stock near the $20 level.
But Chavez did not say anything yesterday about compensation to the shareholders, or even if they would be compensated, which dropped the stock from US$19.83 to US$9.50 in early trading, before it bounced back above US$ 12.1, certainly below the US$ 21 promised by Slim’s group.
But if there was confusion about CANTV, Chavez’ others threats of nationalization were even less defined. He stated broadly that everything that was privatized had to go back to the Government, which would involve all sorts of companies, including steel maker Sidor, which is owned by Ternium. Even more confusing was his mention of Electricidad de Caracas explicitly, which was purchased by US based AES, but was never owned by the Government since electricty came to Venezuela. It was simply a private transaction in which AES offered to buy shares from all shareholders willing to sell. Even more ironically, Chavez made it sound like that transaction took place long ago, in the evil days of the fourth Republic, but this was initiated, approved and completed during the Chavez presidency and he once hailed that same transaction on the steps of the Presidential Palace as he hugged the President of AES. Which simply goes to show that eight years later, Hugo Chavez still is improvising and planning what he wants to do and that the project is simply about Hugo Chavez.
One immediate impact of the measure is simply the almost certain death of the already moribund Caracas Stock Market. Curiously, it was the Government itself which helped revive it last year, first by changing the savings plans of companies and Government institutions to allow investments in stocks, as well as hailing, authorizing and promoting a secondary offering of Electricidad de Caracas shares in the amount of US$ 90 million, which was purchased mostly by small investors in July 2006.
Shares of both CANTV and Electricidad de Caracas were halted from trading today for 48 hours as the the former military officer that was put in charge of the Securities Commission asked investors to remain calm, “don’t sell” and wait for more details to be announced tomorrow by Chavez. In any case, the Caracas Stock Exchange dropped today 18.6%, after Electricidad de Caracas was halted after a 20% drop. If the stock had been allowed to trade it would have dropped even more, pushing the index even lower. The parallel rate jumped near Bs. 4,000 to the US dollar, almost twice the official exchange rate.
Chavez’ desire for control has now been extended to these two companies (and who knows what more!) in a clear sign that the President does not understand how times have changed. When CANTV was privatized in 1990, it was a fixed line operator with some 2.2 million lines. Today, the company has 3 million fixed lines and over 5 million cell phones. But there are two more cellphone operators which combined with CANTV reach 50% of the Venezuelan population, thanks to prepaid cell phone cards. Thus, CANTV is no longer the monopoly it was in 1990 and, if and when, it is run by the state it will become inefficient and badly managed and the two competitors it has will simply clobber the company in the market place, rendering CANTV worthless in the hands of the Government. The same is true for trunking, data and Internet services. Competitors will see the nationalization of CANTV as simply a business opportunity in the face of a company which will certainly become politicized and slow under the new revolutionary management. (Just imagine Chavistas jockeying to be on CANTV’s Board or “participate” in an equipment contract)
And in Internet services, I am told half of the traffic leaves the country via routes different than CANTV so that fears of Internet control are largely exaggerated.
What is clear is that rather than going towards a “new” model, Chavez seems to want to go to a model that is so IVth. Republic that one does not know whether to laugh or cry. Chavez’ idea of XXIst. Century Socialism seems to be longing for how Venezuela was run in the days of his youth, ignoring the effects of technological advance and globalization, as well as its total failure.
Thus, in a country with more than 50% poverty and a collapsing infrastructure, Chavez chooses to spend money elsewhere in his continued belief that we are such a rich country that we can do all things at once. Ironically, oil was down sharply today before recovering partially at the end of the day.
But what is perhaps more worrisome about all the announcements is that Chavez has asked for extraordinary powers, his second enabling law since 1998. Worrisome, because one does not know what will come out of it. One has no clue as to what Chavez can come up with during that year where he will have the ability to legislate at will.
Meanwhile, the whole episode clearly proves, not shows, that Chavez is not only not a democrat at all, but he is not even interested in talking about the issues with his own supporters. The National Assembly members will become a decoration for one year, as he legislates for them. They have not been allowed to discuss these issues, they were told what to do, in the same manner they were told they will have a single party from now on. And if you don’t like it, well, good riddance, as the Chavez praying mantis effect has had a great run during the last week.
Thus, for all the mention of the “people”, “participatory” democracy and the like, in the end, it is all about Hugo Chavez and what he thinks and wants. The model is whatever it may be today or tomorrow in Chavez’ mind, but nothing can be assured beyond that. Yesterday it was Venevision that was conspiring against him. Today it is RCTV. Tomorrow who knows, it may be this blogger. What is clear is that Chavez means less democracy, less freedom of speech, more state control, less power to the “people”, less respect for human rights or international law or institutions. Autocracies are like that and Hugo Chavez’ is not going to be an different. Today markets plunged in Venezuela and so did the country’s democracy.