“I Won’t Rob You”

Byron King has been following developments south of the U.S. border, in Venezuela. Recently, Venezuela was in the news for seizing the oil production assets of several Western oil companies. But there is more going on down there than just an energy play, and here is Byron’s report.

“We're going to pass a law, Rocca,” said Venezuelan President Hugo Chavez last week.

Ordinarily, it is no big deal when a nation passes a law or two. The world is full of legislatures that pass laws. And the world is also full of lawyers, who figure out how people can do what they want to do without breaking those laws. But if a law has somebody’s name on it, particularly as a target of that edict, then it makes you sit up and take closer notice.

Hello, Rocca
Rocca refers to Paolo Rocca, the chairman of Ternium SA, an Italian-Argentine conglomerate that is part of the Techint Group. Ternium holds investments in flat and long steel manufacturing, processing, and distribution businesses throughout Latin America. Ternium owns equity interests in Argentina's largest steel company, Siderar. Ternium also controls Hylsamex, one of Mexico's largest steel companies. And Ternium controls 60% of the Venezuelan steelmaker Siderurgica del Orinoco, or Sidor.

Venezuela’s President Chavez has been critical of Sidor for selling the major part of its Venezuelan steel output overseas, thus forcing local producers to import steel products from elsewhere. Due to domestic price controls instituted by the Chavez regime, Sidor has been unable to raise prices locally in Venezuela, while the international market for steel has been strong and rising. Thus, in general, it is more profitable for Sidor to ship its product elsewhere and sell into the international export markets.

But Chavez believes that local Venezuelan industry should receive priority when it comes to a domestic firm, albeit a subsidiary of a foreign conglomerate, allocating local production. The “law” that Chavez threatened to pass was in the context of a warning to Mr. Rocca that the Venezuelan government would expropriate Sidor from the Argentine-controlled company if it resists this effort.

A Summons to Caracas
Chavez has summoned Ternium Chairman Rocca from Buenos Aires to Caracas for talks. The Financial Times of May 8, 2007, confirmed that Chairman Rocca would travel to Venezuela to meet with President Chavez. The meeting was arranged, in part, through the offices of Argentine President Nestor Kirchner, who recently provided Mr. Chavez with the opportunity to lead an anti-American demonstration in Argentina while U.S. President Bush was visiting neighboring Uruguay.

A Clear Warning
President Chavez was quite clear and specific in his warning to Sidor and Ternium. According to an Associated Press report, Chavez said at a news conference, and in no uncertain words, “We're going to force you to supply, first and foremost, the Venezuelan domestic market before you take [the steel] to other countries.” Continuing his blunt warning, Chavez said, “If you don't agree, give it to me. I'll grab your company. Give it to me, and I'll pay you what it's worth. I won't rob you.”

In its own defense, Ternium executives told analysts last Friday that they are not aware of a steel supply issue in Venezuela, according to reports on the Dow Jones wire.

“I would rather not do it,” said Chavez of the prospect of nationalization, but “Sidor takes raw material overseas to produce stainless steel pipes. We cannot allow that.”

“We Should Work on a Different Model”
So Mr. Chavez has said he “won’t rob you,” but they “cannot allow” a privately held company to export its product. What is one to make of this?

Whether there is a steel supply issue or not, Venezuela’s President Chavez was recently granted special powers by his nation’s National Assembly to decree laws. Essentially, Chavez can rule his nation via executive orders, without going through the niceties of a legislative process that includes any political opposition. This is, of course, a form of one-man rule -- although Chavez often qualifies his supreme and unalloyed powers by claiming that he is performing his acts in the “name of the people” or in “defense of the sovereignty” of Venezuela, or with similar words.

Also according to Chavez, “I think we should work on a different model with Latin American business owners.” By this, Chavez distinguished Latin American companies from American-owned or -based entities, particularly Western oil companies. Chavez indicated that he was asking his fellow Latin Americans to "operate differently...at least here in Venezuela.” Chavez also stated that he was prepared to require all businesses in Venezuela to supply domestic demand before exporting goods into the global marketplace.

In other recent comments, Chavez has threatened to nationalize Sidor and private banks if they fail to alter what he called “unscrupulous business practices” that harm local industries.

Venezuelan commentators believe that Chavez does not plan an imminent takeover of the banks and Sidor, but instead intends to bully the Venezuelan private sector so that it falls in line with his intended socialist revolution, a current work in progress. Since early 2007, the Chavez government has been on a drive to nationalize other sectors of the Venezuelan economy, and Chavez has already moved to take state control of telecommunications and electricity companies, as well as foreign-owned investments in the oil sector.

Karl Marx’s Birthday
On Saturday, May 5, 2007, President Chavez rode in a red Volkswagen Beetle to a poor Caracas slum, where he registered his name with a movement to create a single, pro-Chavez ruling party within his country, called the United Socialist Party of Venezuela. Chavez also gave a speech, noting that the day was Karl Marx’s birthday.

In words reminiscent of a hard-line Marxist version of so-called “liberation theology,” Chavez said that “If any rich person wants to become a member of the United Socialist Party of Venezuela, he will be welcome, but he must begin by setting aside his wealth to the fight against misery." Note the eerie similarity to the Biblical injunction from Matthew 19:24, which states, "And again I say unto you, it is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God."

President Chavez continued his speech along these lines, repeatedly citing the communist ideals of Karl Marx and of Russian revolutionary Leon Trotsky (who was assassinated on the orders of Joseph Stalin and died on Aug. 21, 1940, in Mexico City). Chavez has stated on other occasions that Venezuela needs a “single socialist party” to control political interests and “more efficiently” lead the country.

Clearly, something is going on inside the head of President Chavez, a mixture of Marx and Jesus, but it is not just about helping people to “enter into the kingdom of God.” So the next time that you read of Venezuelan President Chavez saying something like, “We're going to pass a law,” you will know what he means.

Until we meet again…Byron W. King