Monday, January 08, 2007

Venezuela Moves to Nationalize

Sources: Bloomberg News, Chavez Plans to Nationalize Cantv, Other Utilities; The Guardian, Chavez: Will Nationalize Telecoms, Power; New York Times, Venezuela Will Nationalize Telecoms and Power.

Following his re-election last month, on January 8 Venezuelan President Hugo Chavez announced that he will nationalize the country’s telecommunications and electrical companies. Presently, the nationalization plan includes industries of strategic importance, such as the telephone company C.A. Nacional Telefonos de Venezuela (CANTV) and the electrical company Electricidad de Caracas, owned by a Virginia-based company.

The nationalization announcement did not come as a surprise to some observers as Chavez had threatened to nationalize CANTV last August if it failed to adjust its pension payments to those of minimum wage. Additionally, the plan to nationalize corresponds with the movement towards a greater socialist state that Chavez promised voters prior to his re-election. “We are in an existential moment of Venezuelan life,” he stated, “We’re heading toward socialism, and nothing and no one can prevent it.''

In his speech, the President also mentioned that oil projects currently underway in the Orinoco River basin should also be under national control, lamenting the fact that “international companies have control and power over all those process of improving heavy crudes” and concluding that heavy-crud refineries in the region “should become the property of the nation.” However, unlike with the electrical and telecommunications industries, Chavez did not state whether a full nationalization of the oil projects would be required, nor did he outline under what terms private companies may be permitted to continue to operate in the area or if they would be compensated.

To expedite the nationalization process, Chavez hopes to convince the National Assembly to pass a law granting him power to effectuate changes without their further approval. Chavez operated under such an Executive Order in 2000 and 2001, and because the Assembly is controlled by Chavez allies, such a request is unlikely to be contested.

(1) What are some of the benefits of privatization of these industries?

(2) Is the President’s decision to nationalize based on the welfare of the Venezuelan citizens? What roles do making a political statement and ensuring regional alliances are clear play in the decision, if any?

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