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January 10, 2007
A Dictator Only Cindy Sheehan Could Love

Venezuela's Hugo Chavez threatened yesterday to nationalize key industries and demanded dictatorial powers, accelerating the OPEC member's move towards Castroism. Global investors reacted by beginning to bail out of corporations at risk from Chavez' attempts to seize assets:

Verizon Communications had been looking to lighten its exposure to Latin America for some time when it struck a deal in April to sell investments in three properties in Puerto Rico, the Dominican Republic and Venezuela.

Now, it probably wishes it had disconnected its Latin lines even sooner.

The company could possibly lose up to several hundred million dollars, thanks to President Hugo Chávez of Venezuela, who threatened to nationalize the country’s main telephone and electricity companies.

Investors reacted with alarm here and in markets in the United States and throughout Latin America on Tuesday as they measured the impact of the plan by Mr. Chávez to nationalize crucial areas of the economy. Memories of past nationalizations during another turbulent era, in places like Cuba and Chile, helped drive down the Caracas stock exchange’s main index by almost 19 percent.

Chavez did not slake his thirst for power on just nationalization of the telecom and and energy industries. He also demanded enhanced executive powers that would allow him to impose laws by edict for one year before the Venezuelan assembly could attempt to reverse them. Chavez also proposed ending the autonomy of Venezuela's central bank, putting Chavez firmly in control of monetary policy. He will likely face little dissent on either point from the rubber-stamp legislature, which contains nothing but Chavez allies now.

Verizon and AES face hundreds of millions in losses if Chavez nationalizes these industries. Some analysts claim that Chavez has too much exposure here in the US. Venezuela owns Citgo, and American courts could seize the fuel company's assets to reimburse those losses if Venezuela does not pay market value for the assets Chavez seizes. That implies a rational thought process that Chavez has not always demonstrated, however, and in his zeal to create a Cuba with oil reserves, he may not care about any short-term losses here in the US. With control of monetary policy, he could simply divert more resources from the central bank, if necessary.

In order to gain the hard currency necessary for all his changes, however, Chavez will have to pump oil more vigorously than ever before. That makes it difficult for him to use oil as an economic weapon against the US. Venezuela is our fourth-largest source of foreign oil, but given the market's fungibility, even if they sold less of their production to us, we would still find more oil on the market from elsewhere. Chavez cannot afford to sell less oil after nationalizing these key industries, at least not if he hopes to succeed in his efforts.

The Venezuelans will not stand for much more of this. Chavez nearly lost out in a coup attempt a few years ago. If he continues to create this tinpot dictatorship for himself, the next one will succeed.

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Posted by Ed Morrissey at January 10, 2007 5:08 AM

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