Venezuelan President Hugo Chavez's warning to suspend trade with
Colombia, repeated several times over the past year and a half, is
somewhat worrisome, but his threat of expropriating assets of
Colombian companies is causing greater concern.
Late Tuesday, Chavez froze diplomatic relations with Colombia
and threatened to shut the border for trade between the two
countries. Moreover, he threatened to expropriate Colombian
companies' assets in Venezuela.
"It is not easy for Colombia to find a market that absorbs $6
billion (of our exports), but it is certainly not easy for
Venezuela to find another partner that will supply products with
good quality and price," Colombian Trade Minister Luis Guillermo
Plata said Wednesday.
Venezuela is Colombia's second-largest market for exports, after
the U.S. But a rupture in trade flows would likely be far more
problematic for Venezuela - which imports manufactured goods and
about two-thirds of the food that it consumes - than for
Colombia.
Chavez's move follows accusations from officials in Bogota that
Swedish-made rocket launchers sold to Venezuela were found in the
hands of the Revolutionary Armed Forces of Colombia, or FARC, a
Colombian rebel group that's also listed as a terrorist
organization by the U.S. and the European Union.
The allegations reignited concerns in Colombia that the Chavez
administration supports the FARC, Latin America's largest guerrilla
organization that finances itself mainly through narco-trafficking,
kidnapping for ransom and extortion.
While Chavez has said he's neutral with respect to the conflict
in Colombia, he has also condemned the Colombian government's
get-tough approach on the FARC that has garnered President Alvaro
Uribe the highest popularity ratings in Latin America.
Last year, when Colombia forces struck a FARC camp in Ecuador,
killing the group's second-in-command, Chavez suspended diplomatic
relations, sent Venezuelan troops to the border with Colombia, and
honored the slain rebel leader.
Colombian markets haven't taken Chavez's latest
economic-retaliation threats lightly.
While risk aversion has made a comeback globally this week, the
Colombian peso Wednesday shed much more than most other
"high-yielding" currencies, losing 2.5% of its value against the
dollar. The country's IGBC benchmark stock index fell 0.2%, while
the yield on the 2020 TES bond jumped to 9.012% from 8.876%.
Jimena Zuniga, a New York-based analyst at Barclays Capital,
said the peso's depreciation was an "exaggerated" reaction,
pointing out that Venezuela cannot afford to cut the supply of
goods from Colombia.
"Venezuela would suffer in terms of worsening food shortages,
increasing already high inflation and more pressure on the fiscal
deficit," she added.
Venezuela depends on Colombia for basic goods such as dairy,
meat, clothing and, more strategically, imports 300 million cubic
feet of natural gas a day, twice as much as originally agreed
upon.
Petroleos de Venezuela SA, the state-owned oil firm, needs
natural gas for its oil reservoirs to increase pressure and boost
production, and as raw material for its petrochemical industry.
In past rows between the two countries, Venezuelan authorities
had not shut the border for more than a few days. Colombian exports
to Venezuela actually rose 17% in 2008 from the previous year.
Meanwhile, Venezuelan Vice President Ramon Carrizalez said
Wednesday the government hasn't ordered a shutdown of the
border.
Chavez's other threat to nationalize or expropriate Colombian
assets in Venezuela could gain traction and reinforce investors'
worries. During his decade in power, he has expropriated some of
the largest companies in the country and brought large swaths of
the economy under government control, including the biggest private
firms and assets in the energy, power, telecommunications, building
materials and agricultural sectors.
Last year, in one nationalization spree, Colombia's largest
cement maker, Cementos Argos SA (CEMARGOS.BO), lost a cement plant
it bought in 1998. The company is still awaiting compensation from
the Venezuelan government.
Colombian companies operating in Venezuela include food
processor Grupo Nacional de Chocolates SA (CHOCOLATE.BO) and
privately owned dairy Alpina SA.
In addition, Almacenes Exito SA (EXITO.BO), Colombia's largest
retailer, owns a minority stake in a Venezuelan supermarket chain
called Cativen. Exito is controlled by French retailer Casino
Guichard Perrachon SA (12558.FR).
Officials from Alpina and Exito declined to comment on the
situation. Chocolates said it will take a "cautious" approach to
avoid contributing "tensions that must be handled with
diplomacy."
Carrizalez said the government is reviewing economic ties with
Colombia, although no decision has yet been made and no specific
companies were being targeted.
-By Inti Landauro and Diana Delgado, Dow Jones Newswires;
57-1-6107044 Ext 1131; colombia@dowjones.com
(Darcy Crowe in Caracas contributed to this article.)
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