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TheStreet Open House

Venezuela Leaving World Bank's Arbitration Body

Stocks in this article: COPOI

Since taking office in 1999, Chavez has ordered the takeover of hundreds of properties, including major international investments as well as cattle ranches, farms and, recently, parking lots and junkyards to pave the way for public housing projects.

Russ Dallen, a financial analyst in Caracas, also said Venezuela's decision would probably spook many potential investors.

"I think that Chavez's withdrawal from ICSID will have a chilling effect on what is left of the companies still thinking about investing in Venezuela," Dallen said. "Chavez has already shown his willingness to expropriate businesses as he sees fit."

The Foreign Ministry said the 1966 treaty that established the ICSID undermines Venezuela's sovereignty and contradicts the country's constitution.

Government officials who signed the agreement in 1993 were "pressured by traditional economic groups that participated in the dismantling of Venezuela's national sovereignty," it said.

Under the terms for withdrawal, there is a six-month month period during which more cases can be filed, said Marcos Carrillo, a professor of arbitration and conflict resolution at the Andres Bello Catholic University and IESA business school in Caracas.

If a state-run or private company refuses to comply with the center's decision, winners of ICSID rulings often seek to recover lost assets by seeking an embargo on the sale of assets owned by the defendant, Carrillo said.

Referring to Venezuelan officials, he said: "When there's an ICSID decision, they have two options: Either they voluntarily comply with it or it's enforced."

If Venezuela were to "refuse to participate or recognize any future awards, the convention makes any award in those cases enforceable in any of the 140 jurisdictions that are members of ICSID," Dallen said.

Venezuela's attorney general, Carlos Escarra, suggested last year that Venezuela should consider abandoning the ICSID, following the example of leftist governments in Ecuador and Bolivia, which pulled out in the past several years.

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