Venezuela's Chavez readies forex curbs, foes wary

www.forbes.com Reuters, 02.05.03, 3:23 PM ET By Patrick Markey

CARACAS, Venezuela, Feb 5 (Reuters) - Opponents of Venezuelan President Hugo Chavez said on Wednesday they feared the leftist leader would use planned foreign exchange controls as a political weapon to repress them after they failed to oust him with a two-month strike. Venezuela's government suspended currency trading two weeks ago while it drafted the controls to protect its reserves and the bolivar currency after the opposition strike cut off its economic lifeline by slashing vital oil production. Chavez, clearly buoyed by the limited restart of the oil sector, warned foes he would go on the offensive and ordered restricted access to U.S. dollars for the business leaders and opponents he accuses of trying to topple him. "There can be no pardon here. There will be no negotiation with traitors or with terrorists. We don't negotiate our principles," the president told supporters late on Tuesday. Chavez is locked in a bitter struggle with opponents who are pressing for elections to oust a leader they say rules like a dictator and wants to install Cuban-style communism. He has resisted calls for an early vote. Since Chavez's 1998 election on a populist platform, his fierce anti-capitalist rhetoric and threats against private property have riled foes who accuse him of driving the nation into economic chaos. Finance Minister Tobias Nobrega last week said the government planned to introduce a fixed exchange rate that would be adjusted monthly. Officials said priority access to dollars would go to fuel, medicine and food imports. Currency markets are scheduled to reopen on Thursday, but sources said the government was still wrangling over the final details of the control regime. Anti-Chavez business leaders said they feared draconian currency controls would be used to punish strikers by restricting access to dollars. Venezuela imports more than 60 percent of its goods and many businesses need the U.S. currency to purchase products from overseas partners. "This will be a political tool. This regime is doing everything to finish off the private sector, said Albis Munoz, vice president of the Fedecamaras business chamber. The strike, started on Dec. 2 by unions, private sector leaders and opposition parties, battered the oil-reliant economy. But the stoppage later faltered and most businesses have since reopened. Only state oil workers are staying out. Chavez has sacked more than 5,000 state oil employees in a strike-breaking offensive to restart exports. But strikers say oil production still stands at just over a third of the normal 3.1 million barrels per day. ECONOMIC JITTERS, SLIDING CURRENCY Chavez, who survived a coup last year, is defiant in the face of an opposition he sees as divided and without clear leadership. He has vowed to strengthen his self-styled "revolution" aimed at easing poverty. A six-nation group, led by the United States and Brazil, is backing efforts by the Organization of American States to broker a deal to end the political dispute over the president's rule. But Chavez rejects opposition calls for a constitutional amendment that would shorten his term and trigger early elections. He says they must wait for a referendum after August -- halfway through his current term. Economists say currency controls may initially help Venezuela stave off economic crisis and keep up its foreign debt payments. But they say exchange curbs and price controls hamstring the private sector and push up prices. "This will deepen the recession, halt recuperation by limiting access to currency and hike inflation," said Orlando Ochoa, economics professor at Catholic University in Caracas. Nervous demand for U.S. dollars sent the local bolivar currency <VEBFIX=> tumbling 24 percent from the start of the year until the government suspended trading on Jan. 22. Venezuela's reserves dipped $670 million dollars from the start of the year and $1.23 billion since the strike began. The reserves stood at $11.26 billion on Feb. 3. While the initial fixed rate has not been released, sources say it will be set between 1,600 and 1,800 bolivars to the dollar. The bolivar last traded at 1,853 to the dollar. Venezuela last had exchange controls during a banking crisis from 1994 to 1996 until it reached an accord with the International Monetary Fund. The controls fostered a thriving black market, with currency trading conducted through private accounts and Brady bonds. A black market has already surfaced, with the bolivar trading at 2,200 to 3,000 bolivars to the dollar. Prices on many goods have spiked as businesses bet they will be forced to pay more for imports ranging from televisions to baby foods.