Venezuela Shuts Currency Market, Vote Suspended
asia.reuters.com Wed January 22, 2003 08:09 PM ET By Patrick Markey
CARACAS, Venezuela (Reuters) - Venezuela on Wednesday suspended foreign exchange trading in a desperate bid to stem capital flight and a slide in the bolivar as the government battled an opposition-led strike that has drained its oil-reliant economy.
The Central Bank said it would close the foreign exchange market for five trading days and prepare temporary currency exchange and transfer curbs to fend off the impact of the strike aimed at forcing leftist President Hugo Chavez to resign and accept elections.
The economic measures were announced hours before the Supreme Court delivered a blow to the opposition campaign by suspending a nonbinding Feb. 2 referendum they were planning to hold on the president's rule.
Venezuela's bolivar currency has tumbled more than 28 percent during the seven-week-old work stoppage and its international reserves have dipped since the strike began on Dec. 2. The stoppage has slashed oil output in the world's No. 5 petroleum exporter to a fraction of normal levels.
Chavez, a fiery populist who brands foes as "terrorists" trying to topple him again through an "economic coup," said the government planned currency curbs, but did not elaborate.
"This is a measure to defend our economy and the bolivar," Chavez told a military parade in Caracas.
Economists said exchange controls would give the economy short-term relief, but it would suffer later as long-term controls would trigger black market trading and restrict private sector transactions.
"This looks more like a kneejerk reaction to the currency weakness," Jose Cerritelli, an Andean debt strategist for Bear Stearns, said. "But in the long term, people look to escape the controls by taking their money out."
Opposition leaders hope their strike will pressure former paratrooper Chavez to agree to early elections. They say he has driven Venezuela toward economic ruin and Cuba-style communism. But Chavez, who was elected in 1998 and survived a coup in April, has refused to quit and vows to defeat the strike.
COURT DECISION RILES OPPOSITION
Negotiations to resolve the conflict are stalled over the timing of possible elections. Former U.S. President and Nobel Peace Prize winner Jimmy Carter on Tuesday proposed a blueprint for elections that would also end the strike.
His proposal suggested two options: a constitutional amendment to trigger early elections or a binding Aug. 19 referendum as allowed under the constitution. Both sides are analyzing the Carter initiative.
The Supreme Court decision to suspend the Feb. 2 referendum inflamed tensions between Chavez and his foes. At least six people have been killed in clashes since the strike began.
Chavez, who led a botched coup six years before his victory at the polls, welcomed the court decision as "good news."
The president's supporters planned huge rallies throughout the capital on Thursday in a show of strength.
Outraged opposition leaders condemned the court's ruling as a biased political decision and accused Chavez of deliberately blocking their campaign to call elections.
"It's unacceptable. It's a blow to the hopes of millions of Venezuelans who are expecting an electoral solution to the crisis," opposition negotiator Rafael Alfonzo said.
The referendum would not have legally forced Chavez from power. But the opposition hoped a decisive rejection of his government would have vindicated their calls for elections. Chavez dismissed the poll as illegal and urged foes to wait until the August referendum.
ECONOMIC CRUNCH, FEARS OVER DEBT
The economic crunch has raised fears Venezuela may default on its foreign debt. But the Central Bank said the government would maintain the necessary operations to make debt payments.
Venezuela's international reserves have fallen to $11.05 billion, a drop of 7.5 percent so far this year. The government also has $2.85 billion in its FIEM rainy-day savings fund and insisted recently that hard currency levels were sufficient.
Finance Minister Tobias Nobrega said the government planned to slash its 2003 budget by 10 percent, extend a temporary bank debit tax through 2003 and continue with a domestic public debt swap to counter the economic damage of the strike.
Chavez has fought back against the shutdown, sending troops to seize control of oil installations and refineries and importing food and gasoline to offset shortages.
Strike leaders say the government has failed to break the stoppage. But in a first sign of a crack in the strike, some tanker pilots in the key western oil and shipping hub of Maracaibo went back to work this week.