Caracas extends freeze on foreign exchange

www.iht.com The Associated Press Wednesday, January 29, 2003   CARACAS Venezuela on Tuesday extended a freeze on foreign-exchange trade for another week amid a two-month-old strike against President Hugo Chavez that has spurred a dramatic slide in the value of the bolivar.

The suspension, which bans Venezuelans from buying foreign currencies, was first imposed last Wednesday. It will be extended until Feb. 5 to give the government more time to implement a new policy of foreign-exchange controls. Those controls will limit the amount of U.S. dollars or other currencies citizens can buy, according to a Finance Ministry official.

At the end of the freeze, the government also is expected to impose a fixed rate for the bolivar, which has lost 25 percent of its value so far this year. It lost 46 percent of its value in 2002.

The strike, called Dec. 2 by a coalition of business groups, labor unions and opposition parties demanding Chavez's resignation, has cost Venezuela at least $4 billion, according to government estimates.

The economy could shrink by as much as 40 percent in the first quarter of 2003, the Santander Central Hispano investment bank has warned. The economy contracted by an estimated 8 percent in 2002. Unemployment is 17 percent; inflation is 30 percent.

Exchange controls are intended to protect Venezuela's shrinking foreign reserves. Before the freeze on currency trade, reserves were falling an average of $59 million a day as the central bank tried to defend the bolivar against soaring demand for dollars. But exchange controls could hurt businesses that depend on dollars to buy imported goods. Venezuela relies heavily on imports - 50 percent of its food is imported, for example.

Business representatives have expressed concern that discontent with food and fuel shortages caused by the strike could undermine its objective of removing Chavez from office.

Julio Brazon, president of Consecomercio, the business chamber that represents about 450,000 stores and retailers, said businesses needed "to recover earnings and avoid labor problems."

Shopping malls and franchises may be permitted to open part-time next week, he said.

But strike organizers, who accuse Chavez of dragging the country into political and economic chaos, warned that easing the work stoppage would be counterproductive.