By Matthew Walter and Daniel Cancel
March 6, 2009
http://www.bloomberg.com/apps/news?pid=20601086&sid=ahkgPA6Q9ZoM&refer=latin_america
Venezuelan President Hugo Chavez set his sights this week on Lorenzo Mendoza, the Caracas-based billionaire food and beer magnate, as he pushes his socialist revolution to new a level of threats against private enterprise.
National Guard troops occupied a rice mill owned by Mendoza's company, Empresas Polar SA, last week, and Chavez directly warned Mendoza, 43, whose family has a net worth of $5 billion according to Forbes magazine, that he is now in the government's crosshairs.
"You can't work beyond the law, Mendoza," Chavez said during a televised March 4 cabinet meeting, where he alleged the company was evading rules that require it to produce food at government-set prices. "We could expropriate all of Polar's plants."
In singling out one of Venezuela's wealthiest men, Chavez is showing that his strategy for dealing with a looming economic slump will be to push for an expansion of state control, said Patrick Esteruelas, a risk analyst at Eurasia Group in New York. He may also suffer a backlash for attacking the producer of Venezuela's most popular beer.
"He's going to be careful with Polar," Esteruelas said. "It's a wholly domestically owned company, and many of its branded products are marquee goods that are very popular."
Corn Flour
Polar's plants produce foodstuffs from corn flour, used to make Venezuela's staple corn paddies called "arepas," to mayonnaise, frozen fish and ice cream.
"Chavez simply doesn't like independent businessmen," said Miguel Octavio, head of research at BBO Financial Services Inc. in Caracas. "If a businessman doesn't depend on Chavez, he doesn't like it."
This isn't the first time the president has threatened Empresas Polar. A year ago he accused food processors of hoarding goods, and singled out the Caracas-based, privately held company as a "clear example" of a business that could be taken over.
In October 2005, Polar filed suit with the country's Supreme Court seeking to overturn the seizure of a food processing plant by a state governor. The company's Barinas I plant was seized that year by then-Barinas state Governor Hugo de Los Reyes Chavez, the president's father.
End Capitalism
Mendoza, who studied at Fordham University and the Massachusetts Institute of Technology, has tried to maintain a low political profile since Chavez survived an attempted coup in 2002, said Robert Bottome, editor of the Veneconomia newsletter in Caracas, who says he knows Mendoza.
Through a spokeswoman at Empresas Polar, Mendoza declined to be interviewed. Chavez, a self-proclaimed socialist who says he aims to eradicate capitalism in the oil-exporting economy, has regularly singled out the executive.
"I know that Mendoza has turned his money here into wealth, a reserve surely kept abroad," Chavez, 54, said in a speech last June to businessmen, asking them to bring home some of the funds invested abroad to increase productivity in Venezuela.
Mendoza shifted in his front-row seat, as state television cameras focused on him at the nationally televised event.
"Chavez cannot tolerate anyone who is able to deal with him in a position of strength, and the Polar group is a strong group," Bottome said.
Since his re-election in 2006, Chavez has nationalized the biggest telecommunications and electricity companies, cement firms and a steel mill. He seized heavy crude oil joint ventures in 2007, prompting Exxon Mobil Corp. and ConocoPhillips to leave Venezuela and seek international arbitration.
Rice Mills
In his latest crackdown, the president sent troops into rice mills to verify whether they're complying with government regulations on production of price-controlled foods. The government began the process this week of seizing a rice plant owned by Cargill Inc., the biggest U.S. agricultural company.
"We can't allow monopolies like Polar," Chavez said yesterday. "That's why we've ordered the intervention and possible expropriation of the plants, just like Cargill."
Polar said in a statement yesterday it has always complied with Venezuelan law, and publicly called for more dialogue with the government. The company asked the Supreme Court to rule that the occupation of its plant by troops is illegal.Corn Milling Machines
Should the government decide to seize Polar's facilities, it will offer bonds in compensation, not cash as in past nationalizations, Chavez said March 4. That may stem from the fact that Venezuela, which depends on oil revenue to finance half the government's budget, is running out of money, said Miguel Carpio, an economist at Banco Federal CA in Caracas.
"From here on out, Chavez's strategy is going to be coercion," Carpio said in a telephone interview. "This is a time of crisis, and this is the least expensive option."
Morgan Stanley says Venezuela's economy will contract 1 percent this year, even as inflation quickens. Goldman Sachs Group Inc. economist Alberto Ramos predicts Venezuela will have to devalue the currency to compensate for a drop in oil revenue."Inflation is at 30 percent, and food shortages are creeping back up, and those are the two things that keep Chavez awake at night," said Esteruelas. "Chavez can deal with those problems in two ways, either by extending an olive branch to the private sector, or by taking them over."
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