Our Favorite Dictator At It Again Expropriating Metals Firms

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Hugo Chavez made some sweeping headlines this weekend when he announced the expropriation of several companies within the metals and mining industry. Included in his latest operative (in which he failed to come to terms over a fair valuation for said companies) are: Materiales Siderugicos Matesi an hot iron ore briquette manufacturer along with Orinoco Iron who claim to be the largest hot iron ore briquette merchant in the Americas. Mineweb also reported the company Norpro de Venezuela C.A. an affiliate of the U.S. company Napro as part of the expropriation announcement on Saturday.

Chavez defended his actions by proclaiming domestic and international capitalists as “benefiting from Venezuela’s natural resources.”  Instead, Chavez justified his actions by saying, “it is necessary to reduce the high levels of exports of raw materials, iron, briquettes, aluminum, and use them for national development.” Right, except national demand expressed as GDP will contract anywhere from 2-5% this year. Some believe and we’d concur that the economic contraction has to do with the slow-down of private sector activity. The World Bank’s chief economist for Latin America, Augusto de la Torre, recently told the Washington Post, “The reason Venezuela is contracting is because private activity is contracting. What we’re seeing in Venezuela is a phenomenon where productivity, private activity and private business is falling.”

It doesn’t take a rocket scientist to point out that when industry faces economic uncertainty (e.g. fear of expropriation would qualify as economic uncertainty) activity slows down (in this case, Matesi stopped its operations half way through last year). Certainly any new hiring and plans for additional capital improvements moved to the back burner for all of these companies. Will nationalization ensure that workers produce products cost effectively and sell them into the national market? Maybe but here is one thing I can’t understand. If Chavez devalued his currency back in January as we reported earlier to stimulate exports and has now nationalized several large exporters to better “serve the domestic market, how does one reconcile these two competing policies? Oh never mind. This will never make sense. I just need to study this country to understand Chavez’ strategy.

–Lisa Reisman

Comments (2)

  1. Trevor says:

    I can’t believe this is happening. It’s like déjà vu all over again. I attended high school in La Paz, Bolivia during the 80’s – an era when the socialist experiments in Bolivia and several other South and Central American countries on the continent imploded. During this time, politicians typically stayed in power just long enough to line their pockets and appoint extended family members and friends to top positions in government and industry before another debilitating coup d’état would occur. I can still remember making book covers out of 100 peso bills and Scotch tape because it was cheaper to do that than to buy a book cover. You’d think folks would look at and contrast the experience in Chile and understand that free market reforms are the only thing that will ever increase the size of the middle class. Only when that occurs, do greater political freedoms naturally arise. Unfortunately endemic corruption and poverty continue to plague countries throughout the continent. Venezuelans are smart people – they should have known better than to let this idiot Chavez into office. He is single handedly erasing years of progress and squandering the country’s future. When things go bad and there are no more evil outside companies to blame, he’ll find another scapegoat, possibly Metal Miner. You did afterall run this article.

  2. admin says:

    Trevor, I think you are correct in all accounts including the fact that MM will be a scapegoat. Luckily, I don’t have any imminent plans on traveling to Venezuela. I likely wouldn’t make it home. It’s a really sad story. In Zimbabwe, they finally stopped issuing any currency because they simply couldn’t keep up with the constant revaluation. Now everyone barter trades, just like they did centuries ago! LAR

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