Chávez now aims for corporate-owned land

The Venezuelan leader speeds up land reform, sparking fresh concerns for investors.

Beyond the gates of his farm, Alfonso Puche sees sunburnt farmers slashing his young sugar-cane crop with machete blades. He hears the motor of his own tractor uprooting seedlings at nightfall to make way for new vegetable crops.

"There is no rule of law here," said Puche, who accuses state officials of encouraging land grabs by declaring his and dozens of other farms state land.

Takeovers like this are part of President Hugo Chávez's recently accelerated land redistribution campaign in which thousands of rural poor are being granted rights to till arable farmland traditionally concentrated in the hands of wealthy landowners.

After Mr. Chávez's controversial land reform bill passed in 2001, the government began implementing the program by redistributing its own land holdings to poor families. Then last January, the government began to seize land held by private owners. But now the campaign, which remains popular here, is increasingly targeting land owned by large corporations, sparking fresh concerns that it is chasing out foreign investment.

In early September, the governor of the eastern state of Monagas had troops seize an idle ketchup plant from H.J. Heinz Co. based on the 2001 law and a presidential decree issued by Chávez in January that established the legal framework for the government to take private properties it considers underutilized, and to distribute them to poor farmers and workers.

After negotiations, the state government recently paid Heinz $256,000 for the plant - only half of what the company initially sought. Heinz's demands included the costs of the plant's machinery, which the state decided not to buy. The Monagas government is forming a state-run company to reactivate the plant by next year.

The government also said in early October that it would take over more cattle land run by British meat producer Vestey Group Ltd., after it seized the company's 31,600-acre El Charcote ranch earlier this year. Chávez said last week that Vestey had agreed to negotiate the takeovers with the government. The national government also recently seized silo installations from Empresas Polar, Venezuela's largest food company. Caracas has since allowed the company to operate the silos while the company challenges the takeover in the Supreme Court.

A JP Morgan report released last month said land seizures would "hurt business confidence" by "undermining private sector property rights."

Mr. Chávez denounced the report on national television, calling rating agencies "imperialist."

Chávez denies that he is jeopardizing private property, instead assuring that he is fighting latifundio, or large land holdings. The wealthy and the government have historically held most private property in Venezuela, while most of the lower class has remained without land titles. Chávez, who says he is leading a "Bolivarian Revolution" in the name of Venezuela's liberator Simon Bolivar, said in January that nearly 5 percent of landowners own 80 percent of the land.

Moving forward what he calls the "new socialism of the 21st century," Chávez has recently increased calls for state officials to take over private land. Soldiers have enforced some of the takeovers, at times denying owners and workers access to their land.

"This process is generating panic in the private sector," says Orlando Ochoa, professor of economics at Caracas's Andres Bello Catholic University.

John Pate of the Caracas-based law firm De Sola, Pate, & Brown, which specializes in commercial and business law for multinational companies in Venezuela, agrees that wariness about private property rights will cut foreign investment even further.

"No one is really investing to manufacture anything new," says Pate, who says he has lost half of his international clients since Chávez came to power in 1998.

A US government official, who spoke on the condition of anonymity, says American companies were only investing when they had to. "Under these conditions, it is difficult for US companies to make new investments," he says. "It's hard to have a clear market plan."

In the midst of expropriations, foreign direct investment fell by 43 percent in the second quarter of 2005, according to Venezuela's central bank.

Yet, despite the takeovers, Polar president Lorenzo Mendoza says his company will continue to invest in Venezuela.

Foreign companies in Venezuela have not fled the country either. In fact, US exports to Venezuela are on the rise as windfall oil profits from high oil prices continue to boost the economy, which the central bank said grew by 9.3 percent in the first half of this year. Oil accounts for a quarter of GDP here in the world's fifth largest oil exporter.

"Multinationals are doing very well," the US official says. "There's a lot of money in the street because oil prices are so high."

But land takeovers are likely to continue unless those oil profits decline, says Carlos Machado, agro-business professor at Caracas's Institute for Higher Administration Studies business school.

In the meantime, Mr. Machado says shaky private property rights would deter him from investing in his country.

"Land has a social value, not a market value" in Venezuela, he says.

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