The announcement last week that Hugo Chavez planned to nationalise telecom and energy companies shouldn’t have come as much of a surprise to those who have been observing the trends in the South American economy (though that hasn’t stopped the markets from reacting strongly – the Caracas stock market has declined 32% since last Monday’s announcement). His rhetoric and policy actions have been moving more and more towards the “Cubanisation” of the Venezuelan economy and society, including holding more economic power in the hands of the state, for a number of years, threatening most business interests held by anti-Chavistas or foreigners.
While the nationalisation of Cantv and Electricidad de Caracas are exceptionally bad news for confidence in the Venezuelan economy and the Spanish and American foreign investors who have stakes in the companies, much more worrying is the country’s continued slide to authoritarianism.
In classic (albeit outdated) Latin American strongman style, Chavez announced today that he will seek extraordinary powers to enact laws by decree during the next one and a half years. This follows on from Chavez’s control all three branches of government – he holds a 100% mandate in the National Assembly and the courts are stacked in his favours - making Louis XIV’s infamous phrase “L'état c'est moi” entirely appropriate. More troubling still is that Mr. Chavez plans to rewrite the Venezuelan constitution for the second time since he was elected, and do away with term limits to his presidency, paving the way towards the institutionalisation of Chavez. Oil prices are dropping, and this, in combination with his recent landslide electoral victory, seem to be emboldening Chavez to take power while he can and while he still has money to distribute in the country side through populist programmes to ensure continued support from his main constituency.
I say that the political trends are much more worrying than the economic ones because while the memories of foreign investors tend to be short, implying that future changes in Venezuela’s economic policy to be more friendly towards foreign investment would generate a stampede of risk-acceptant companies back into the economy, the damage Chavez is inflicting on Venezuela’s democratic institutions is deep and intractable. Political institutions do not recover easily from tampering and undermining, and restoring trust in a government is a very long term project. And thus the question arises, when Chavez is gone, what will be left of the Venezuelan state?
