Reuters, 05.19.03, 6:38 PM ET

CARACAS, Venezuela, May 19 (Reuters) - Business owners trying to decipher Venezuela's complex currency controls to access U.S. dollars are being approached by shady middlemen offering to cut through the red tape -- but at a price.

Accusations of corruption are surfacing nearly four months after the Venezuelan government introduced strict foreign exchange curbs, which critics say have starved the world's No. 5 oil exporter of hard currency even as it battles to shore up its battered economy.

In interviews with Reuters, two private local firms who applied to the state currency board Cadivi said they were contacted by "fixers" offering to secure them access to greenbacks in exchange for a 12 percent commission.

One executive at an oil machinery importer, who spoke on condition of anonymity, said in March Cadivi refused his firm's application to register for the dollars it needed to import equipment for the oil sector.

But a few weeks later the firm received two unsolicited phone calls offering to help them register with Cadivi and also obtain U.S. currency for a commission and a $600 fee.

"One said 'We know that your application was rejected. I have someone who can help with your registration,'" the oil executive said. "How did they know that? They had to have some inside contact."

Foreign diplomats in Caracas, who monitor domestic trade developments, say they have also been informed of similar cases by other businessmen.

It was not clear who the callers were or how they were able to access information about which companies had applied to Cadivi and which had been refused.

The executive at the oil firm said his company received the calls after Cadivi refused its registration, alleging they had failed to adequately prove the nature of their business.

He rejected the unsolicited offer although his company, like many others, has been crippled by the hard currency drought. The firm normally carries out multiple imports to ship in petroleum equipment from overseas.

"We want to do things the right way. This isn't just one import and that's it. Our company relies on access to dollars through legal means, whatever they are. There has to be a regular flow of currency," he said.

But a Cadivi official contacted by Reuters dismissed suggestions of corruption. The official said the board managed applications through a strict registration system that monitored all transactions.

"This system is under tight control," the official said.

MANY CONTROLS, NOT MANY GREENBACKS

Venezuela decreed the draconian currency and price control regime in February saying it needed to shore up the economy after a two-month opposition strike disrupted vital oil output but failed to oust President Hugo Chavez.

Nearly four months after the curbs were put in place, Cadivi has only approved around $140 million in applications. But very few firms appear to have received hard currency.

Before the new forex rules, Venezuela's currency market traded about $60 million a day alone.

Government officials blame the delays on companies who have failed to properly complete the application process. But private analysts warned months ago that the controls would foster corruption and a black market in dollars.

"The system is so cumbersome and the requirements so byzantine that it has become a blunt instrument that is bludgeoning all of the economy," one foreign diplomat said.

Venezuela's economy shrank nearly 9 percent in 2002 and economists predict that it will contract even more this year with inflation and unemployment climbing higher.

Opponents of Chavez, elected in 1998 on promises to aid the poor, said the currency curbs are already causing shortages in basic foods, such as flour. More than 60 percent of Venezuela's goods are imported.

During the early 1990s, Venezuela implemented an earlier currency control system that spawned a huge black market and rampant corruption. Already, the black market has reappeared with the bolivar trading at around 2,200 bolivars to the U.S. dollar. The official fixed rate is 1,600 to the dollar.

Caracas, May 19 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuela's Supreme Court overturned a government decision to charge value-added tax on private medical costs, which may widen the budget deficit as federal revenue declines.

The Supreme Court ordered an injunction on collection of the tax on private surgical, dental and hospital expenditures, saying it violated individual rights. The 8 percent tax went into effect Jan. 1 as part of a government plan to increase revenue.

``This constitutes a real threat to (an individual's) right to health,'' Supreme Court Chief Justice Ivan Rincon said, announcing the decision.

The injunction is a setback to government efforts to narrow the deficit, which some analysts estimate will be as high as 5 percent of gross domestic product this year amid an 18 monthlong recession. The Venezuelan economy may contract 17 percent this year after a strike choked off oil exports, according to the International Monetary Fund.

Venezuela has already reduced its estimates on non-oil tax revenue by about 900 billion bolivars for the year ($563 million) to 13.4 trillion bolivars. Last Updated: May 19, 2003 16:07 EDT

By Jan Dennis <a href=www.stltoday.com>Associated Press Writer updated: 05/19/2003 05:03 PM

Gasoline prices should hold steady, but holiday travel could prove costly for Illinois motorists who fail to buckle up this Memorial Day weekend.

Police agencies around the state launched their largest-ever seat-belt crackdown Monday, and expect to hand out up to 25,000 tickets over the next two weeks in an effort to trim the annual death toll of about 1,400 on the state's highways.

Illinois State Police and more than 90 percent of local police departments across the state are participating in the ``Click It or Ticket'' campaign, part of a nationwide traffic safety program.

Through June 1, police will target seat-belt violations, which normally bring charges only after drivers are stopped for another offense. That zero-tolerance approach would become law under a bill pending in the Legislature.

Transportation officials hope the threat of a $55 ticket increases awareness and decreases traffic fatalities.

Home Improvement & Gardening (207) Automotive & Vehicles (205) Dining & Entertainment (149) Services (137) Medical (118) Real Estate & Rentals (113) Finance (88) Furniture (76) Grocery (66) Movies (50) ...more on Ad Zone``We want to get them to buckle up before they see their friendly neighborhood policeman,'' said Shannon Alderman, chief of safety projects for the Illinois Department of Transportation.

Historically, as many as 20 motorists are killed in holiday weekend accidents in Illinois, and most are unbuckled, Alderman said.

``I want it to be zero. That's ultimately the goal,'' he said.

Illinois' compliance rate for seat belt use is nearly 74 percent, up from about 66 percent three years ago but still short of the national average of 75 percent, Alderman said. An increase to 85 percent would save 141 lives a year statewide, according to IDOT estimates.

Along with seat-belt violations, police also will be on the lookout for drunken drivers and other traffic violations, Alderman said. The crackdown could include up to 200 roadside safety checks across the state over the three-day weekend, he said.

While motorists can expect extra patrols for Memorial Day, they should find stable prices at the pump, said Steve Nolan of AAA-Chicago Motor Club.

He predicted gasoline prices will remain near Monday's statewide average of $1.55 per gallon, up slightly from $1.52 a gallon over the holiday weekend last year.

Barring something unforeseen, Nolan said, prices should stay in that range through the summer, after fluctuating from a low of $1.49 a gallon to a high of $1.75 in the weeks before the war with Iraq.

``That's good news, but the caveat is that something always seems to go wrong, like last year's refinery fires and the work stoppage in Venezuela,'' he said.

Nolan said 35 million people will travel 50 or more miles from home this weekend, up less than 1 percent from last year.

``Any increase is an extremely good sign for the travel industry given the state of the economy and the concerns over SARS and terrorism threats,'' he said.

Rio de Janeiro, May 19 (<a href=quote.bloomberg.com>Bloomberg) -- Latin American currencies declined, led by Brazil's real on investors' expectations the government will cut interest rates, easing its fight against inflation and causing the trade surplus to shrink.

The real slid 1.9 percent to 2.9975 per dollar at 3:36 p.m. New York time, headed for a two-week closing low. The real has declined 4.2 percent since May 12, the sixth-worst decline of 59 currencies tracked by Bloomberg. In 2003, it is up 18 percent, the best performance in that time. Argentina's peso declined.

Pressure on the government to cut the benchmark interest rate from 26.5 percent is mounting both inside and out of the government and was attacked in a front-page editorial yesterday in the Folha de S. Paulo, Brazil's largest-circulation daily.

The market is beginning to slowly realize this government sees the current set of policies as somehow temporary,'' said Tony Volpon, an economist with New York based Dinosaur Securities. A shift to a growth promoting policy, independent of pension and tax reforms in Congress will lead to a weaker real.''

Central bank President Henrique Meirelles has said interest rates will not fall unless inflation, now at its highest 12-month rate since 1995, also declines. Lula's coalition, though, faces a revolt from party members opposed cutting government pension spending and the system's deficit from 5.5 percent of Brazil's gross domestic product by increasing workers' contributions.

The real pared declines after O Globo newspaper's online news service reported Anne Krueger, the International Monetary Fund's deputy managing director, said Brazil needn't act in the currency market to stop the dollar from declining more quickly.

Investor speculation that the country's central bank might take steps to bolster the dollar and safeguard export growth had contributed to the real's slide from May 12's 11-month high.

Market Rates, Debt

While 13 of 15 economists polled by Bloomberg expect the government to keep rates steady this week, interest rates fell in the futures market for contracts maturing in July or later.

The overnight interest-rate futures contract for January settlement, the most-traded on Sao Paulo's BM&F Exchange, fell 17 basis points to 23.66 percent from 23.83 percent on May 16. The contract indicates investor expectations for the end of December. A basis point is 0.01 percentage point.

Brazil's benchmark 8 percent bond maturing in 2014 fell 2.00 cents to 86.38 cents on the dollar from 88.38 on May 16 and a record high 91.75 on May 13, according to J.P. Morgan Chase & Co. The yield rose to 11.45 percent.

Merrill Lynch & Co., the biggest securities company by capital, today in a note to investors by Tulio Vera, head of emerging market fixed-income research, raised its recommendation on Brazil debt to overweight, so as ``to better capture the next leg of this run up.''

Argentina

Argentina's currency fell for a fourth day after President- elect Nestor Kirchner said he wants to see it weaken to 3 per U.S. dollar to make the country's exports more attractive and spark economic growth.

The peso fell 0.9 percent to 2.9150 per dollar and has dropped 4.7 percent since May 14, when former President Carlos Menem pulled out of the election, giving Kirchner the win.

``It's less appealing to put your funds there with this noisy political background,'' said Guillermo Estebanez, a currency strategist at Banc of America Securities Inc. in San Francisco.

The Argentine peso had gained 16 percent against the dollar in 2003 before today, making the country's exports less competitive overseas, arousing investor concern a strong peso might choke off a nascent economic recovery. Additionally, Argentina's new government will spend 8 billion pesos this year on public works projects, such as paving roads and building homes, to try and spark economic growth, Vice President-elect Daniel Scioli said in an interview. The country hasn't begun talks with bondholders on $95 billion in defaulted debt.

``Kirchner is basically saying he will take away from the fiscal numbers whatever amount could be used to pay creditors,'' Estebanez said.

Mexico

The Mexican peso fell for the third day in four as declining global stock indexes and local interest rates prompted traders to sell pesos.

The peso fell 5.35 centavos, or 0.5 percent, to 10.3535 per dollar from 10.3 per dollar at the close May 16. The peso fell to a record low of 11.2644 on March 6 and last week rose to 10.0985.

U.S. and Mexican stocks declined on concern slow global economic growth will choke off demand for Mexico's exports and capital inflows into Latin America's largest economy. Comments by U.S. Treasury Secretary John Snow this weekend that suggested the U.S. is content with the 22 percent slide in the dollar this year also weighed on the peso.

The peso is getting weaker because markets don't know to interpret'' Snow's comments, calling the dollar's recent losses fairly modest,'' said Jose Maria de la Torre, head of fixed- income research at ING Bank Mexico SA. ``The losses in stocks point to further weakness in the U.S. economy.''

Rates on Mexico's benchmark 28-day Treasury bill dropped to a historic low of 4.9 percent in the May 13 weekly auction of government debt, reducing investor sentiment to hold peso- denominated assets.

Colombia

Colombia's currency fell for the third day in four after the Prosecutor General Edgardo Maya said a government plan to cut spending through a referendum was largely unconstitutional.

The peso fell 1.3 percent to 2,885 per dollar from May 16, when its plunged 1.5 percent after the central bank called off its June dollar call options auction, traders said.

``This is partly due to what the prosecutor general said and also because of the suspension of dollar options sales for June,'' said Juan Pablo Barney, a peso trader with Banco de Credito de Colombia SA.

Maya, who monitors government agencies, said 14 of 19 questions proposed in a government-backed referendum, including one to freeze some government spending for two years, were unconstitutional.

Ratings

The Constitutional Court, which is studying the referendum's constitutionality, is set to issue a ruling in late September. Ratings agencies such as Standard & Poor's are closely monitoring the progress of the proposed referendum.

Colombia has a Ba2 rating from Moody's Investors Service and BB from Standard & Poor's, both two levels below investment grade.

The country's peso-denominated bonds paced declines by the currency. The benchmark 15 percent coupon peso-denominated bond due in January 2012 fell 2.27 to 95.9, pushing its yield up to 15.84 percent.

The country's 10 percent dollar-bond that matures in January 2012 fell for a fifth day, losing 2.25 cent on the dollar to 108.5, down from a high of 115.25 last week after Merrill Lynch downgraded Colombian debt to marketweight from overweight.

Chile's peso fell for the fourth day in five, declining 1.3 percent to 714.35 per dollar from 705.05 on May 16. Peru's new sol weakened 0.4 percent to 3.4895 per dollar from 3.4759 on May 16. Uruguay's peso weakened for the first day in three, losing 1 percent to 29.4500 per dollar from 29.3 on May 16. Venezuela fixed its bolivar at 1,598 per dollar this year. Last Updated: May 19, 2003 15:36 EDT

EDUARDO CAMEL ANDERSON EL UNIVERSAL

Venezuelan economist Hugo Faría considers that the new economic plan announced by the Vice Minister of Industry and Commerce (based upon credits at preferential rates, purchases by the government and an "endogenous development") is just a return to "the policy of replacement of imports -a policy that have already failed in the country."

Faría -professor at Instituto de Estudios Superiores de Administración, IESA, a top-ranked business school in Venezuela- wonders how many producers and farmers have received soft credits before? He adds that Venezuela had a very successful economy until 1957, when people did not have any of those facilities but low tariffs, when the Central Bank worked as a small currency board and there were just a few state-owned businesses."

From his point of view, "the real solution to poverty is a high and sustained rate of economic growth. To reach that goal, evidence has proven that the appropriate recipe includes economic freedom, an efficient judicial system, low inflation, reduced taxes, and public expenses focused on education, health and national security."

Hugo Faría explains that "the model proposed by Chávez supporters is a copy of "Puntofijismo" (a pact previously adopted by Venezuela's two main political parties to share power). "We do not have an alternative proposal to what we had before."

"We face a repetition of past mistakes: destruction of the legal framework, destruction of the currency through devaluations, increase in current expenditures, a higher interference of the government in the market, approval of laws to block international trade, memberships in obsolete organizations, such as the OPEC, and financing education demand instead of financing its offer," concluded Faría.