beyondbrics

Hugo Chavez openly said during his nearly ten hour marathon address to congress last week that it’s not “fair play” to change the rules of the game before it is over to your advantage

“It’s as if I were to go and play baseball and say, no, I don’t trust this referee – in which case don’t play, how can you play?” asked the Venezuelan leader, demanding that his opponents accept the results of presidential elections next October, whatever they may be, and not complain that the electoral authority is biased.

However, if that is how Chavez feels about the election game, his take is a bit different when it comes to the investment game.

He appears to have decided that one of the main referees – the World Bank’s International Centre for the Settlemtent of Investment Disputes (ICSID) – is indeed biased, and has decided to pull out of the arbitration court and not accept any of its rulings.

And yet, against his own advice, he still plays the game, indeed needs to play the game, with well over $200bn of foreign investment needed to develop Venezuela’s oil-rich Orinoco Belt.

The problem for Chavez is that even if he does go through with threats to withdraw from the ICSID, there is a notification period of six months, during which time other companies can file suits against Venezuela, and it should not affect ongoing cases.

Leaving the ICSID is one thing, but renegotiating bilateral investment treaties is another. “Investment treaties that we have with 24 countries have clauses that require us to use the ICSID, and it could take 10 to 15 years to renounce each treaty,” Venezuela’s Prosecutor General Carlos Escarrá, a die-hard “chavista”, told a local radio station on Tuesday.

The government may also be forced to accept a third-party arbitration body instead of the ICSID, even though it has said it wants to settle investment disputes in local courts – where the referee surely would be biased, in a judicial system hardly famed for its independence.

In spite of all this, Chavez has already said earlier this year, in no uncertain terms, that Venezuela would not respect any ICSID ruling on the Exxon case – one of about 20 pending cases at the ICSID, amounting to potential compensation payouts of as much as $40bn according to analysts.

This is a very clear case, surely, of playing a game while not recognising the authority of the referee. And who’s to say that won’t happen again.

Related reading:
Venezuela to ICSID: goodbye (again), beyondbrics
Cemex Venezuela: we’re outta here, beyondbrics
Venezuela v Multinationals, beyondbrics