Chavez's Economic Plans Set Latin Markets Reeling

White House Warns Venezuela Over U.S. Companies

Venezuela's President Hugo Chavez greets supporters as he rides in an open car to Congress in Caracas, Wednesday, Jan. 10, 2007, where he will be sworn in as Venezuela's president for a third term that runs until 2013. (AP Photo/Leslie Mazoch) (Leslie Mazoch - AP)

BOGOTA, Colombia, Jan. 9 -- Financial markets from Buenos Aires to Caracas reeled on Tuesday following Venezuelan President Hugo Chávez's announcement that he plans to nationalize some private companies, and the White House warned that it expects U.S.-based corporations to be compensated for any losses.

The U.S. Energy Department also expressed concern after Chávez, who has pledged to accelerate his socialist "revolution," said Monday that he would nationalize telephone and electric utility companies and increase state control over four major oil projects in which American and other foreign companies have invested $17 billion.

At the White House, Gordon Johndroe, a spokesman for the National Security Council, said that "if any U.S. companies are affected, we would expect them to be promptly and fairly compensated." He also said that a nationalization plan, if it proved far-reaching, could be harmful to Venezuela.

Meanwhile, White House press secretary Tony Snow lambasted Chávez's plan, saying: "Nationalization has a long and inglorious history of failure around the world. We support the Venezuelan people and think this is an unhappy day for them."

The Venezuelan leader did not say whether his nationalization plan would mean outright expropriation, higher taxes or majority state control. And as is often the case after Chávez's announcements, Venezuelans scrambled Tuesday to play down the news, with energy officials saying the president was only reiterating existing policy.

But the announcement, made in a bombastic speech in which Chávez also attacked the Catholic Church and insulted the secretary general of the Organization of American States, sent stocks into a tailspin in Venezuela and generated market jitters across Latin America.

In Venezuela, the stock market suffered its biggest loss on record, plunging 19 percent, according to the Bloomberg news agency. The currency was also hit hard. The bolivar, which is officially pegged at 2,150 to the dollar, dropped to more than 4,000 to the dollar on the black market.

Trading on shares of CANTV, Venezuela's largest telephone company, was suspended for 48 hours after shares fell 30 percent. And trading on shares for the electric utility, Electricidad de Caracas, was halted after a drop of more than 20 percent. On the New York Stock Exchange, shares of AES Corp., the Arlington-based company that owns 86 percent of Electricidad de Caracas, fell 86 cents, or 4 percent, on news of the Chávez speech.

In Mexico, the stock prices of Telefonos de Mexico and America Movil SA also dropped. The two companies, both owned by the richest man in Latin America, Carlos Slim, had launched a joint effort to take control of CANTV, whose largest shareholder is now Verizon Communications Inc. Stocks in Argentina and Colombia, the latter a close trading partner of Venezuela's, dipped, as well.

"Obviously, the markets responded," said Maya Hernandez, an analyst with HSBC in New York. She said that although Chávez had said he would move to consolidate his socialist agenda, "what surprised us was the urgency with which he moved, not the direction."

Still, she said, the government has generated numerous questions that officials in Venezuela say should be answered Wednesday, when Chávez is to be sworn in to a third term.

"It's very unclear how he will go about this, especially the nationalization," Hernandez said. "What will he do? Is he going to compensate the companies? Is he going to expropriate the companies?"