CARACAS, Venezuela — There's a melancholic feel in the Caracas stock market these days, almost like a gravely ill patient who is coming to terms with the sickness. On a recent Monday, at what should have been the height of mid-morning trading, computer banks sat empty and just two employees kept watch of the trades.
Last year, the market was one of the hottest in the world, growing three-fold alongside an oil-fueled GDP that grew by over 10 percent, tops in Latin America.
But the market suffered a crushing blow earlier this year when President Hugo Chavez nationalized telecommunications giant CANTV and the capital's Electricidad de Caracas (EDC), effectively eliminating 30 percent of its volume.
"The government's purchase of CANTV and EDC has been, without a doubt, a tough blow," Gabriel Osio, the president of the Association of Venezuelan Traders, wrote in an e-mail. "Not only because of the reduction in volume traded, but also because it had greatly affected the confidence of the small and medium investors."
The Caracas stock exchange had never been particularly volatile. The Venezuelan government, through its state oil company PDVSA, generates most of the economic activity in the country of 27 million people. CANTV's and EDC's entrance on the market in the early 1990s changed this panorama somewhat.
But as Chavez has pushed to implement a socialist regime and eliminate the "evils" of capitalism, the market's days seem to be numbered.
The generally quoted index for the stock exchange, the IBC, fell from 50,233 at the end of 2006 to about 40,280 today - a drop of 22 percent, compared with growth of 47 percent in the last quarter of 2006.
The government has taken over what it deems as "idle" lands and factories and handed them over to peasants and workers. It's taken a majority stake in private companies holding oil concessions and threatened to take over the country's largest private steel producer.
More recently, Chavez has focused on the banking side. In April, the president ordered Venezuela's bank deposit protection fund, which works like the FDIC in the United States, to release its assets "to the poor." He has forced the Central Bank to do the same, and said he might withdraw from the International Monetary Fund.
But the biggest blow came in January, shortly after Chavez won re-election by a landslide, when he announced the nationalization of the telecommunications and electricity sectors, both traded on the Bolsa de Valores de Caracas, the stock market's official name.
On "Red Monday," as it became known, CANTV shares tanked in New York, before trading was halted. The buyback came a few months later, and just like that, the most widely traded Venezuelan stock had virtually disappeared. A limited number of CANTV shares are still available on the Caracas stock market, and small amounts of EDC shares are still held by employees and retirees.
Chavez's ideological shift also has hit international investors. Venezuela is one of only two countries in the region that had negative Foreign Direct Investment in 2006. In March, the Institute of International Finance, which represents 375 banks, called Chavez the "all powerful president" who acts with "hostility toward markets (and) poses substantial risk to private firms."
"As Chavez seeks to convert Venezuela into a socialist state," the report said, "it is likely that he will extend the nationalization drive to other sectors and increase state intervention by, for example, capping private sector earnings and imposing mandatory contributions to finance social programs."
As grim as this sounds, Osio, as well as stock market President Victor Flores and Fernando De Candia, head of the government's Regulatory Commission, which is akin to the SEC in the United States, say they have a plan to make the market stronger than ever with the government's help.
Flores has met with telecommunications and energy ministry officials to study whether more shares of CANTV and EDC can be traded publicly. Osio and Flores also have met with De Candia to discuss integrating small and medium sized companies into the stock market as part of their plan to "democratize capital."
De Candia wrote in an e-mail that the government had created a "Market School" to train the would-be capitalists. He said the school already had 1,500 members, and organized the first "Investor's Fair about Democratizing Capital."
"The Stock Market is a vehicle to obtain funds, in addition to contributing to the inclusion of productive sectors geared toward the new productive model under the scheme of democratizing capital," De Candia wrote.
It's not clear if the small and medium sized companies will get special protections from the traditional risks of stock markets, such as severe price fluctuations. But one market official, who spoke on condition that his name not be revealed because he was not allowed to speak on the record, said he was confident that a new influx of capital from investors could make up for the lost volume.
What's more, market president Flores told the local press recently that the stock market will seek to trade more fixed-income offerings, particularly from the government, which in recent months has issued bonds worth over $9 billion.
"The biggest ally that the market has and the principal motor of the capital market in the last four years has been the Regulatory Commission," Osio said, referring to the government's promotion of the small and medium sized companies readying themselves to take the plunge and the possibility of more government bonds.
This strange and seemingly contradictory alliance of a socialist government with a capitalist stock market could be short-lived, however, especially as Chavez deepens his socialist revolution.
"The hole left by CANTV and EDC could be an opportunity for companies that want to grow through this market," Osio said. "However, the rules of the game have to be clear for everyone, (including) investors and the companies."