Venezuela Chamber Sees Unemployment 27% On Price Controls

sg.biz.yahoo.com Friday February 14, 11:46 PM

CARACAS -(Dow Jones)- Unemployment in Venezuela will rise as high as 27% as more businesses cut production of goods subject to price controls the government has recently introduced, Lope Mendoza, president of the country's biggest federation of industry chambers, Conindustria, said Friday.

"Without any doubt, the price controls will lead to shortages and, more seriously, increased unemployment," Mendoza said on local radio.

Unemployment currently stands at about 17%, according to the government. Private estimates put it closer to 20%.

As reported, the government last week introduced price controls on essentials along with restrictions on foreign currency purchases.

With the price controls, the increasingly unpopular President Hugo Chavez's government is trying to hold down the costs of basic goods which would otherwise shoot up as a result of the currency controls.

That's because Venezuela imports more than 60% of everything it consumes, and the currency restrictions make it harder to buy goods overseas, increasing costs.

But analysts have said the strategy will fail because businesses won't sell anything unprofitable, and that will only lead to shortages of price-controlled goods, and a thriving black market for those who can afford to pay for imports.

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Local manufacturers are also seen similarly affected.

Quoting a survey of 35 suppliers of price-controlled essentials, Luis Leon, director of local pollster Datanalisis, said Friday on local radio that manufacturers plan to cut production by an average of a third due to the price controls.

This will lead to a 50% decline in sales, according to the poll.

That in turn is seen likely to further affect gross domestic product, which is estimated to contract more than 30% this year.

-By Jehan Senaratna, Dow Jones Newswires; 58 212 564 1339; jehan.senaratna@dowjones.com