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Rory Carroll, 10th Jan 07 - The Guardian

· President sets out road to socialist republic
· Speech wipes a third from value of phone company

Shares in some of Venezuela's biggest corporations plunged yesterday after the president, Hugo Chávez, said electricity and telecommunications companies would be nationalised as part of a sweeping move towards socialism.

Shares in CA Nacional de Teléfonos de Venezuela (Cantv), the main telecommunications company, fell 33% on the New York stock exchange in the first few hours of trading, indicating investors' alarm. The Caracas stock exchange fell 9.8% and trading in Electricidad de Caracas, another target of nationalisation, was suspended after its shares tumbled by 20%.

Mr Chávez, first elected in 1998, is due to be sworn in today for a six-year term after his landslide re-election last month. During the campaign he promised to accelerate his "revolution", drawing on the ideas of Karl Marx, Fidel Castro and Simon Bolivar, Latin America's 19th century liberator. However Monday's unexpected announcement during the televised swearing in of the new cabinet caught markets off guard. "We're moving toward a socialist republic of Venezuela, and that requires a deep reform of our national constitution," said Mr Chávez. "Nothing and no one can prevent it."

The president also promised a constitutional amendment to strip the central bank of its autonomy, a move which would give the government greater access to the country's financial reserves.

Domingo Maza Zavala, the bank's director, said he was not notified in advance and there was no precedent for such a move. However the policy is expected to sail through the national assembly, controlled by Mr Chávez's allies, as part of a set of "revolutionary laws" allowing presidential decrees.

Cantv, privatised in 1991 before Mr Chávez took power, did not comment beyond saying it had not been notified in advance of the statement. The other target of nationalisation, Electricidad de Caracas, is owned by US-based firm AES.

Mr Chávez hinted the state would seek a majority stake in oil projects in the Orinoco basin, where multinationals such as ExxonMobil and Chevron Texaco have invested $17bn. Venezuela's state-run energy company, PDVSA, already controls 30% to 49% of the Orinoco projects.

A White House spokesman said US companies affected by nationalisation must be fairly compensated and predicted the policy would backfire. "We've ... seen the results of nationalisation in other places, and in general these types of actions do not produce economic benefits as expected."

Mark Weisbrot, of the Centre for Economic and Policy Research in Washington, said the nationalisation was not as radical as it seemed. "After nearly eight years of Chávez's government the private sector until now has actually been a bigger share of the economy. This may now change, but not very quickly or drastically."

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