Chavez Says Currency Controls Foiled Opposition Plot to Empty State Coffers

santafenewmexican.com CHRISTOPHER TOOTHAKER | Associated Press 02/07/2003

CARACAS, Venezuela - President Hugo Chavez claimed his moves to freeze the country's exchange rate had thwarted another plot against him - this time, a conspiracy to bleed Venezuela of its foreign reserves. Venezuela's currency, the bolivar, was pegged to the dollar, two weeks after its value plunged to record lows and dollar sales were suspended. The fixed exchange rate took effect Thursday and carefully controlled dollar trading resumed. Chavez Thursday blamed the crisis on business owners and other opponents, who he says crippled the Venezuelan economy and scared away foreign investors with a two-month-long general strike. "They wanted to take it all and bring it abroad. They wanted to leave us dry," Chavez said. "They wanted to leave us without dollars, so we took away the key." The opposition did not immediately respond to the claim, but several business leaders warned the new policy will fuel corruption and inflation, strangle investment and push the nation's fragile economy closer to collapse. They also claimed Chavez will use the controls to punish those who staged an unsuccessful strike to oust him. It ended earlier this week. A commission appointed by Chavez and the Central Bank will decide who can buy dollars. "This lends itself to any type of witch hunt," said Antonio Herrera, vice president of the Venezuelan American Chamber of Commerce. The new controls fix the bolivar's value at 1,596 to the dollar for sales and 1,600 for purchases. The bolivar closed at 1,853 to the dollar on Jan. 21, the last day of trading, but sold for 2,500 on the black market. The strike and months of political upheaval prompted a run on the dollar, and the bolivar has lost 25 percent of its value this year. Inflation topped 30 percent and foreign reserves dropped by US$2 billion to about US$11 billion. Dollar requests could take as long as 45 days to process under the new rules. That could force many businesses to buy black market dollars at higher prices, leading to higher inflation and corruption, analysts said. Luis Herrera, the owner of a fast food franchise, said he will now have to pay more for products and increase prices. Venezuela imports 60 percent of its raw materials and most of its food. "This will force me to cut costs by laying off workers," Herrera said. "I expect sales to drop by at least 30 percent." Newspapers and TV channels that supported the strike said Chavez could punish them by denying them dollars. "This is a severe threat because if he doesn't authorize dollars for the purchase of newsprint the newspapers simply won't circulate," said Miguel Otero, director of the local El Nacional daily. "Given that (Chavez) labels all the newspapers coup plotters, we can conclude there will be no dollars for us." Past governments used currency controls to restrict newspapers' ability to buy newsprint, which isn't produced in Venezuela. Also Thursday, Chavez attended a rally with a Chinese delegation in Venezuela and handed out Chinese tractors and land titles to farmers.