Chavez wins a battle in oil strike, but difficulties remain

boston.com By Alexandra Olson, Associated Press, 1/29/2003 10:22

CARACAS, Venezuela (AP) President Hugo Chavez appeared to be winning the battle for control of Venezuela's oil industry, overcoming efforts by workers at the state oil company to strangle it with a 58-day-old strike.

In another sign the strike is weakening, private banks agreed Wednesday to restore normal banking hours next week, said Central Bank president Diego Luis Castellanos. Banks and many exchange houses had opened only three hours a day to support the strike.

The decision came after Chavez had threatened to fine banks, suspend their directors and withdraw military deposits from striking institutions.

Even as the government boosted oil production beyond the million-barrel benchmark, the work stoppage has had devastating effects on the country's recession-ridden economy.

Production reached 1 million barrels a day Tuesday one-third of pre-strike levels, according to striking executives at state oil monopoly Petroleos de Venezuela S.A. It had slipped as low as 200,000 barrels per day in December.

Output is rising because the government is focusing on newer oil fields, where crude is easier to extract. But the recovery should slow when the government is forced to reactivate old wells that have sat idle for nearly two months, making their crude sticky and difficult to pump.

''They are going for the lowest hanging fruit on the tree, the easiest to grab,'' said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. ''In a few weeks, it is going to be a struggle.''

Silliere said he expects difficulties to begin when output reaches 1.2 million to 1.4 million barrels per day.

In an effort to regain control of the oil monopoly, Chavez has sacked more than 5,000 of its 40,000 workers. State oil company executives warn the firings will make it even more difficult to reach full production capacity.

''That's what happens when unprepared personnel are put to work,'' Juan Fernandez, the leading spokesmen for dissident state oil workers, told a press conference.

Opposition leaders insist the strike will continue. But a public backlash over food, gasoline and medicine shortages has prompted some workers to consider easing the stoppage in certain areas.

Concerns about a public backlash over food, gasoline and medicine shortages has prompted some strike leaders to consider easing the stoppage in certain areas.

Shopping malls, restaurants and schools may reopen next week, at least part-time, said Julio Brazon, president of the Consecomercio business chamber. Some small businesses have reopened, and others never closed.

''The lifting of the strike is not being proposed now,'' said Carlos Ortega, president of the nation's largest labor union. ''What is being proposed are some strategies that correspond to sectors involved in the strike.'' He did not elaborate.

Venezuelans must wait for hours in miles-long lines outside service stations. To ease the inconvenience, the government will impose limits on daily gas sales, said Luis Vierma, director of hydrocarbons at the Energy and Mines Ministry.

Although Chavez has had some success in reviving oil production, which provides half of Venezuela's government revenue and 70 percent of export earnings, he faces a daunting task in recuperating the country's economy.

Capital flight, stalled investment and strike damage led Santander Central Hispano investment bank to forecast a 40 percent contraction in the first quarter of 2003. Unemployment stands at 17 percent.

A freeze on foreign currency sales to protect the bolivar, which has lost 25 percent of its value this year, was extended Tuesday. The bolivar traded at 2,300 to the dollar Tuesday in secondary markets between private parties, bankers said. It was 1,853 to the dollar before the suspension started last week.

Limits on the amount of foreign currency Venezuelans can buy go into effect next week. The measure has been severely criticized by executives who say it could hurt businesses that depend on U.S. dollars to import goods.

''Chavez many have the initial advantage, but over the long term, he's going to have a much more difficult path,'' said Steve Johnson, senior policy analyst for Latin America at the Washington-based Heritage Foundation.