Chavez sours Latin American investment climate

CHICAGO (Reuters) - The investment climate in Latin America's grain sector has been soured by Venezuela's seizure of a Cargill-owned rice mill, but major democracies in the region will remain attractive over the long term.

Large grain companies, both from the United States and other countries, have looked to land- and resource-rich Latin America as viable investment spots to process and export ingredients from soybeans to corn to wheat.

The sentiment was dented on Wednesday when Venezuela President Hugo Chavez seized a local unit of U.S. agribusiness giant Cargill CARG.UL and threatened to take over Venezuela's top food company Polar, hoping a tighter government grip on food production would help keep prices down.

The move followed recent developments in Argentina, where the government has floated the idea of nationalizing grains trade, seeking broader control over prices in an attempt to boost government revenue.

"Some countries are not at all antagonistic to foreign investment but they're not getting it at the moment anyhow, not just because of what's happening in Argentina and Venezuela, and to a certain extent Ecuador and Bolivia," said Sidney Weintraub, senior economist at the Center for Strategic and International Studies in Washington.

"In other countries like Uruguay, Chile, Mexico, Columbia, where they don't make it difficult, (foreign investment) is suffering because of the global economic situation," he said.

Investors will continue to pursue opportunities on a country-by-country basis in Latin America, as they have in recent years, with bright spots like the agricultural powerhouse Brazil attracting ample foreign investment.

But Venezuela has scared off foreign companies as a nationalization drive snapped up energy, telecoms, steel and cement companies in recent years.

The moves by Chavez have emboldened a few other countries in the region to follow suit in the past, and Venezuela's latest move could trigger government seizures by some of its allies struggling in tough economic times, analysts said.

"What's happening in Venezuela at the moment is pretty sui generis, although it is being copied by Bolivia," said Weintraub. "But it's a heck of a lousy long term policy."

Economists say that government intervention to shore up near term problems like food supply shortages or high prices discourages investment and often leads to longer term issues.

In Argentina, the government has been battling with farmers over export levies on agricultural products, saying it needs to raise export taxes to shore up a budget squeeze.

"So far nobody envisions a Chavez-type situation," an Argentine grain exporter said. "Here, luckily, there is no Chavez. But there is a debate over the role of the state and the possibility of intervention."

Argentine President Cristina Fernandez shocked financial markets in October when she unveiled a plan to shift the country's mixed social security system to an entirely state plan, nationalizing private pension funds.

"If you compare Venezuela now versus a year ago I'm not sure if it's any worse, from the private sector's point of view," said Claudia Calich, head of emerging markets at New York-based investment management firm Invesco.

"Argentina on the other hand is worsening. The government take-over of pension fund assets was a turn that very few anticipated," she said.

(Additional reporting by Nicolas Misculin and Hugh Bronstein in Buenos Aires, Frank Jack Daniel in Caracas)