Venezuela tightens reins on crumbling economy

www.chicagotribune.com By Chris Kraul Tribune Newspapers: Los Angeles Times Published February 7, 2003

CARACAS, Venezuela -- Their oil-based economy on the brink of collapse, Venezuelans braced for tougher times Thursday as the government imposed a risky system of price and currency controls. Most economists say the controls offer little hope of staving off what is shaping up as a disastrous year for the nation's economy, one they say could include hundreds of thousands of lost jobs, double-digit inflation and a possible default later this year on $19 billion in foreign debt. President Hugo Chavez announced the currency and price controls late Wednesday, two weeks after he shut down the foreign exchange. He acted after about $9 billion in foreign currency left the country in the 13 months that ended in mid-January. The latest controls are the third time Venezuela has taken such action since 1983. They set a fixed value of 1,600 bolivars for each dollar and limit prices for a group of essential goods. Although the restraints may stop the outflow of dollars, they are expected to cause higher inflation and a black market for scarce goods. The drop in the nation's oil revenue during the national strike, starting Dec. 2, means the government may have a $9 billion deficit, one of the reasons that debt rating agency Standard & Poor's downgraded Venezuelan debt to CCC+ in December. The exchange rate for the bolivar set by the new currency control is considerably higher than its last close of 1,853 to the dollar on the free market, and a long way short of the black-market value, which is about 2,500 bolivars to a dollar. Chavez also chose a five-member Currency Administration Commission to oversee the distribution of dollars among private businesses and individuals. Businesses say the exchange commission will have discretionary powers that will favor political allies and penalize the opposition.