Friday, April 04, 2008

Venezuela takeover cements Chavez's tough style

By Frank Jack Daniel

CARACAS (Reuters) - A shock nationalization of Venezuela's cement industry is a reminder that President Hugo Chavez has not abandoned his socialist ideology despite promising to focus on more mundane problems such as crime and food shortages.

Chavez, who launched a multi-billion dollar nationalization drive last year, taking over energy and utility assets, announced the cement seizure late on Thursday in a new move to increase government influence in key industries.

After a painful defeat in a December referendum on speeding up leftist reforms and giving him wider powers, Chavez put on hold some radical policies such as eliminating the central bank's autonomy.

He instead vowed to tackle issues such as a scarcity of milk that has hurt his popularity, but has shown with the new nationalization move that he plans to push ahead with his self-declared socialist revolution.

Chavez has had a rough-and-tumble few months, embroiled in a legal fight with Exxon Mobil over his oil industry nationalization and a diplomatic crisis with Colombia that briefly raised fears of a border conflict.

Support for his government sank to 34 percent in February, according to one poll, its lowest point since 2003.

Analysts said the planned cement takeover was a further bid to win back supporters who have criticized the government for failing to build enough houses to cover a shortfall in Latin America's third largest cement producer.

"The measure in some ways is an attempt to move more rapidly in one of the problem areas," said Daniel Hellinger a political science professor at Webster University in St Louis.

Chavez had threatened in the past to nationalize the industry and his announcement on Thursday will stoke fears of takeovers in other areas where he has also warned assets could be seized, such as the banking and steel sectors.

Chavez accused the cement industry, privatized in the 1990s, of worsening the housing situation by exporting their product instead of selling it to builders in his OPEC nation.

The nationalization affects companies like Mexico's Cemex, Frances Lafarge and Switzerland's Holcim, and follows a shopping spree for milk companies and plants that has expanded the government's role in food production and distribution.

Cemex shares were down almost 3 percent on Friday.

Chavez, who typically pays compensation for takeovers, called for the nationalization to happen "in the short term." Mining Minister Rodolfo Sanz said on Friday he had no further details about how the takeover would proceed.

Chavez scored a victory in March when a British court threw out a $12 billion asset freeze that Exxon had won, an implicit recognition of Venezuela's willingness to pay for takeovers.


Nationalizations appear to be a default strategy for the former paratrooper to resolve problems. In diplomatic disputes with Spain and Colombia in recent months, he threatened to take over companies from those countries doing business here.

In 1992, Chavez tried to seize the presidency in a botched coup and had a manifesto to reverse the privatizations of previous governments. Since winning power at the ballot box in 1998, he has implemented much of his pre-coup program.

Despite stepping back from proposals rejected by voters in December, such as extending his expropriation powers, Chavez has never hidden his desire to make Venezuela a socialist state.

After his referendum defeat, the government plastered Caracas with large billboards that said "For Now...," making clear it plans to revisit the socialist reforms later.

Chavez is now preparing a windfall oil tax to increase the government's share of income when crude prices are high.

He had taken a more conciliatory tone with business in recent months, for example cutting red tape for dairy firms like Nestle and Parmalat to speed up imports and put milk back on the shelves.

Last month, he announced plans to expropriate a 200,000 acre (80,000 hectare) farm, but the dairy supplier and milk plant were both bought on the open market.

Alberto Ramos, senior economist at Goldman Sachs, said the cement industry nationalization would create inefficiencies in the economy.

"This is another iteration of the gradual move to a command economy as the government is steadily encroaching on private sector activity," he said in a research note.

(Editing by Saul Hudson and Kieran Murray)

Read Daniel's take on this story here.

And, Katy's here.

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