Venezuela OKs Foreign Exchange Controls

seattlepi.nwsource.com Wednesday, January 22, 2003 · Last updated 8:27 p.m. PT By CHRISTOPHER TOOTHAKER ASSOCIATED PRESS WRITER   Finance Minister Tobias Nobrega poses after announcing in a televised address that a new foreign exchange policy will be revealed in five business days, at Miraflores palace in Caracas, Venezuela, Wednesday, Jan. 22, 2003. Venezuela's central bank suspended its foreign exchange trading for a week starting Wednesday to try to keep the country's currency, the bolivar, from further plummeting in the fallout of a 52-day-old strike that has crippled oil exports. (AP Photo/Juan Carlos Solorzano, Miraflores Press, HO)

CARACAS, Venezuela -- The government plans to impose foreign exchange controls to keep the Venezuelan currency from plummeting further amid a general strike that has crippled the economy.

President Hugo Chavez did not elaborate Wednesday on exactly what limits the government would impose on currency trade.

"We've made a decision that we didn't want to take," Chavez said. "But the situation is serious and there is a persistent speculative attack against the national currency."

The decision means that Venezuelans will be limited in the amount of foreign currencies they can buy per day. The decision is meant to stem a run on the bolivar, which has lost 25 percent of its value this year, atop a 46 percent decline in 2002.

Exchange controls will help protect the bolivar and the government's depleting foreign reserves. But it will hurt businesses that need dollars to pay for imported goods.

"This restriction is going to hurt businesses, which depend heavily on imports, especially industry," said Albis Munoz, vice president of the Fedecamaras business chamber.

Venezuela's economy largely relies on imports - about 50 percent of food is imported. Soft drink producers buy sugar abroad, newspapers import paper pulp and the automobile industry depends on foreign-made parts to keep assembly lines moving.

Ruling party member Rodrigo Cabezas, president of the legislature's finance committee, said any exchange controls would be temporary. The last time Venezuela imposed foreign exchange controls was in 1995 during an economic crisis. Those controls lasted two years.

Cabezas said a team of economists may fix a rate of 1,500 bolivars to the dollar. The fixed rate could go into effect next week. Before Chavez's announcement, the government had allowed the bolivar to float.

The bolivar reached a record low of 1,853 to the dollar Tuesday. Traders said the Central Bank has been injecting up to $70 million a day to protect the currency.

Business leaders, labor unions and opposition parties launched a strike on Dec. 2 to demand that Chavez resign or call early elections. The strike has slashed oil production by more than two-thirds.