'Friends Group' Looks for Venezuelan Election Deal

reuters.com Thu January 30, 2003 07:49 PM ET By Pascal Fletcher

CARACAS, Venezuela (Reuters) - A six-nation group, including the United States and Brazil, began a mission on Thursday to secure an elections deal to end Venezuela's 60-day-old opposition strike that has forced the government to prepare tough currency controls.

Envoys from the group, which includes Mexico, Chile, Spain and Portugal, gathered in Caracas to bolster talks between President Hugo Chavez and his opponents, who are feuding over his leftist leadership of the world's No. 5 oil exporter.

Despite growing hopes for an accord, Chavez, a firebrand ex-paratrooper who survived a coup last year, has given no indication he will accept opposition calls for an early poll.

In a speech on Thursday, the populist president blasted his striking foes as "traitors" trying to wreck the country. "No one is going to sink Venezuela," he said, as his supporters chanted "Hey, hey, Chavez is here to stay!"

Deputy foreign ministers from the six-nation "group of friends," formed this month to help tackle the Venezuelan crisis, were due to hold talks during dinner late on Thursday with Organization of American States Secretary-General Cesar Gaviria.

The strike has slashed vital oil exports to overseas clients, including the United States, which normally obtains more than 13 percent of its imports from Venezuela.

Gaviria is brokering peace talks between the government and the opposition which have so far failed to agree on elections to halt the strike that is threatening Venezuela with economic ruin and has raised world oil prices.

He said the foreign envoys would meet on Friday with Chavez and negotiators from the government and the opposition.

Although support for the opposition strike has clearly weakened, state oil employees have vowed to stay out until Chavez accepts an early vote. The eight-week stoppage is still draining oil revenues despite government moves to restore output, which it says reached 1.4 million barrels per day (bpd) on Wednesday. Strike leaders put output at around 1 million bpd.

Finance Minister Tobias Nobrega said the strike, which he called a "kamikaze attack" on the strategic oil sector, had cut economic growth and would increase inflation and unemployment.

BELT-TIGHTENING MEASURES

He said the government would introduce a fixed currency exchange rate as part of controls to stop capital flight which has bled the nation's reserves during the strike.

"Don't let the savage capitalists think for a moment that we are going to leave any gaps for them to take out dollars," Chavez said. The foreign exchange controls will be introduced next Thursday but the government has said it will continue foreign debt payments.

Nobrega also announced the government would slash the budget of state oil company Petroleos de Venezuela (PDVSA) by $2.7 billion -- a cut of almost one-third -- as it absorbs a slump in vital oil export revenues.

The belt-tightening measures found favor on Wall Street. Citing the slow recovery of oil output and the government's efforts to preserve cash for debt payments, investment banks Merrill Lynch and Morgan Stanley both raised their recommendations on Venezuelan sovereign bonds.

Fears of a worsening economic crisis and violent social upheaval have added urgency to the mission of the "group of friends." "This nation needs solutions. ... The crisis is too deep," opposition negotiator Rafael Alfonzo told Reuters.

Chavez, whose opponents accuse him of dragging the South American nation toward Cuba-style communism, refuses to resign. The opposition has proposed a constitutional amendment to cut his term to four years from six and trigger early elections.

Dampening hopes for an accord, Chavez, elected in 1998, told strikers on Wednesday to forget about him leaving office.

He has vowed to beat the strike, which he portrays as an attempt to topple him by wealthy, hostile elites opposed to his self-styled "revolution" in favor of the nation's poor.

Foreign Minister Roy Chaderton, a government negotiator, underscored Chavez's determination, saying: "The government is not interested in getting rid of itself. It is not seeking either a shortened term or early elections or any change of government even within the framework of the constitution."

Observers of the talks said the six nations wanted to build a climate of confidence, focus attention on the key electoral issue and act as guarantors of any agreement.

But they added that a settlement did not appear close. "I haven't heard anyone who is in the middle of the (negotiating) table saying that ... This process is still ongoing," said Matthew Hodes of the Atlanta-based Carter Center, which is headed by former U.S. President Jimmy Carter. (Additional reporting by Silene Ramirez, Ana Isabel Martinez)