Venezuelan merchants balk at currency, price curbs

www.forbes.com Reuters, 02.07.03, 4:47 PM ET By Pascal Fletcher

CARACAS, Venezuela (Reuters) - Venezuelan store owners and lowly street vendors often compete for customers on the same patch of pavement. But they seem to agree on one thing: the country's new currency and price controls are bad for business. In downtown Caracas, where the spirit of free commerce and competition rules in an atmosphere of bustling chaos, most merchants were uncertain and fearful Friday about the tough economic curbs introduced by President Hugo Chavez this week. Standing inside his men's' clothing store, stocked with neatly displayed merchandise but empty of customers, Horacio Bargiela wondered if things could get any worse. "We have inflation. We have a recession. Now we have currency controls. Where do we go from here?" said the 68-year-old son of Spanish Galician immigrants who has been in the garment trade for 30 years. Seeking to resolve a crippling economic crisis triggered by a two-month opposition strike that failed to oust him, the left-wing president imposed a fixed exchange rate for the bolivar currency Thursday and tight restrictions on the movement and use of dollars. Chavez, who was first elected in 1998, swore in a government committee to control hard-currency transactions in and out of the country. He made clear he would personally supervise the allocation of currency and vowed "not a single dollar" would be granted to opponents he condemned as "coup mongers" and "terrorists" for staging the grueling strike against him. Like the owners of many private businesses, large and small, Bargiela and his wife, Laura, shut their shop for part of December in support of the nine-week opposition strike. The strike, which is still affecting the oil industry, slashed output by the world's No. 5 oil exporter, forcing the cash-strapped government to halt foreign exchange trading to stem capital flight and support the sliding bolivar. The Bargielas said that if Chavez carried out his threat to withhold dollars from businesses that backed the strike, many of them would simply stop importing or producing. In turn, shops and retailers that depended on their supplies would run out of merchandise or would have to look for it elsewhere, probably at higher prices. "If Chavez says he's not going to give dollars to the coup mongers, then we're all coup mongers. We'll just have to shut up the shop," said Laura Bargiela. She said 90 percent of the materials used to make the clothes they sold were imported. Two local importers had already informed them they were closing down their businesses. "We see a pretty uncertain and dangerous future," she added.

POOR SQUEEZED AS WELL Just down the street, Julio Cesar Luz and Doris Tineo are struggling to eke out a living with a sidewalk stall selling cheap plastic party masks imported from China. "We've been here about three months, just getting by. But it's pretty tough," Luz said. In the same week Chavez announced the foreign exchange controls, Luz's local suppliers increased the price of the masks by about 40 percent. "Of course this affects us, everything just keeps going up," Luz complained. Private businesses and economists say the currency and price controls will stifle private enterprise and push the oil-reliant economy even deeper into recession. They predict that already high inflation and unemployment will rise further. Bargiela said he had already cut back his store's small sales team from three to one. "And we're all here twiddling our thumbs with nothing to do," he said. Chavez, who portrays his "revolution" as a crusade to help Venezuela's poor, also announced price controls on a range of goods and services, including basic foods like beans, milk, bread, flour and eggs. Electrical goods store manager Juan de Sousa said: "If you're in electrical goods and even if your business is legal, the government doesn't give you dollars to import, what are you going to do? Sell beans, sell flour?"