Today’s Wall Street Journal says (subscription only) Venezuelan President Hugo Chavez has had documents drawn up to withdraw his country from the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID).
This comes after foreign companies have lodged dozens of complaints against Venezuela in international tribunals, including 18 active cases at ICSID.
But this “withdrawal from ICSID” meme seems unlikely to go anywhere:
– It’s not new. Chavez first floated the idea in 2007, after ICSID became one of the fora in which Exxon Mobil and ConocoPhillips demanded better terms than those that Venezuela offered for the expropriation of several oil and natural gas production and upgrading projects in eastern Venezuela. Here is a briefing that the Milbank law firm put out at the time on that topic.
– ICSID is just one of several fora in which companies can take Venezuela to arbitration. It’s the best known, maybe because it has a website. But as Milbank says: “the ICSID Convention is hardly Venezuela’s only international legal commitment of potential relevance to foreign investors. Sources of rights potentially assertable by foreign investors include investment treaties that Venezuela has entered with more than 20 countries, and Venezuela’s Foreign Investment Law of 1999, which makes express reference to ICSID and contains assurances of fair and equitable treatment.”
– The future costs of a pullout could be immense. PDVSA, the state oil company, has about $250 billion in investment plans, and essentially no truly free cash flow (as all the cash gets soaked up by the state) and had $6 billion in unrestricted cash at the end of last year. That difference — almost a year of Venezuela’s GDP — can be made up only through foreign investment. Investors are already intensely wary because of the lack of “seguridad jurídica” in Venezuela. Reducing the means by which investors can protect themselves against expropriation just means they will charge more to lend or invest in the first place, making Venezuela more of a slave to the gringos, rather than less.
These arguments prevailed last time. I suspect they will again. Chavez may pull out of ICSID as a campaign stunt ahead of the presidential election, but I doubt it. We shall see.